cont'd - KNM Steel Sdn Bhd

KNM GROUP BERHADWorld Class ProcessEquipment Manufacturerand Total Solutions ProviderANNUAL REPORT 2012

Contents2 Corporate Information3 Notice of Annual General Meeting8 Corporate Structure10 KNM at a Glance11 5-Year Group Financial Highlights12 Chairman’s Message15 Profile of Directors18 Corporate Governance Statement32 Audit Committee Report36 Statement on Risk Management and Internal Control37 Financial Statements139 List of Top 10 Major Properties142 Analysis of Shareholdings and WarrantholdingsForm of ProxyVisionTo be a top 5 process equipment manufacturer and turnkey systems provider for the oil, gas,petrochemicals, minerals, power, environmental, renewable energy and biotechnology industriesMission• To be a one stop centre for world class process equipment manufacturer and systemsprovider with state-of-the-art-technology• To achieve customer satisfaction through continuous improvement on quality, safety,environment and timely delivery• To enhance stakeholders’ value with corporate social responsibility• To enhance organisational infrastructure and human capital development

2KNM GROUP BERHAD I Annual Report 2012Corporate InformationBoard of DirectorsDato’ Ab Halim bin Mohyiddin, DPMSIndependent Non-Executive ChairmanIr Lee Swee EngExecutive Director/Chief Executive OfficerDatuk Karownakaran @Karunakaran a/l RamasamyIndependent Non-Executive Director(resigned w.e.f. 13 February 2013)Dato’ Dr Khalid bin NgahSenior IndependentNon-Executive DirectorSoh Yoke YanIndependent Non-Executive Director(appointed w.e.f. 14 March 2013)Gan Siew LiatExecutive DirectorChew Fook SinExecutive DirectorBoard CommitteesAudit Committee Nomination Committee Remuneration CommitteeChairman Dato’ Ab Halim bin Mohyiddin Dato’ Ab Halim bin Mohyiddin Dato’ Dr Khalid bin NgahMember Dato’ Dr Khalid bin Ngah Dato’ Dr Khalid bin Ngah Dato’ Ab Halim bin MohyiddinMember Soh Yoke Yan Soh Yoke Yan Soh Yoke YanMemberIr Lee Swee EngCompanySecretariesFariz bin Abdul AzizLS 0007997Lau Bee GeeMAICSA 0817743RegisteredOffice15 Jalan Dagang SB 4/1Taman Sungai Besi Indah43300 Seri KembanganSelangor Darul Ehsan, MalaysiaTel No. : 603-8946 3000Fax No. : 603-8943 4781Email address : knm@knm-group.comWebsite : www.knm-group.comDate ofIncorporationIncorporated on 22 July 2000 as aprivate company limited by shares.Converted to a public companylimited by shares on 12 September2000.AuditorsKPMGChartered AccountantsLevel 10, KPMG Tower8 First Avenue, Bandar Utama47800 Petaling JayaSelangor Darul Ehsan, MalaysiaTel No. : 603-7721 3388Fax No. : 603-7721 3399ShareRegistrarSymphony Share Registrars Sdn BhdLevel 6, Symphony HousePusat Dagangan Dana 1Jalan PJU 1A/4647301 Petaling JayaSelangor Darul Ehsan, MalaysiaTel No. : 603-7841 8000Fax No. : 603-7841 8008Stock ExchangeListingMain Market of Bursa MalaysiaSecurities Berhad(Listed since 11 August 2003)Stock name : KNMStock code : 7164PrincipalFinanciersMalayan Banking Berhad Standard Chartered Bank Export-Import Bank ofMenara Maybank Malaysia Berhad Malaysia Berhad100 Jalan Tun Perak Level 15, Menara Standard Chartered Level 1, EXIM Bank50050 Kuala Lumpur 30 Jalan Sultan Ismail Jalan Sultan IsmailMalaysia 50250 Kuala Lumpur 50250 Kuala LumpurMalaysiaMalaysia

KNM GROUP BERHAD I Annual Report 2012Notice of Annual General Meeting3NOTICE IS HEREBY GIVEN THAT the 11th Annual General Meeting of KNM Group Berhad will be held atParameswara Room, Level 2, Mines Wellness Hotel, Jalan Dulang, MINES Resort City, 43300 Seri Kembangan,Selangor, Malaysia on Thursday, 27 June 2013 at 10.00 a.m. for the following purposes:As Ordinary Business:1. To receive the Audited Financial Statements of the Company for the financial yearended 31 December 2012 and the Reports of the Directors and Auditors (Pleaserefer to note (i)).2. To re-elect the following Directors who retire pursuant to Article 127 of theCompany’s Articles of Association:(a) Lee Swee Eng(b) Gan Siew Liat3. To re-elect Soh Yoke Yan who retires pursuant to Article 132 of the Company’sArticles of Association.4. To approve the Directors’ fees of RM890,000 for the financial year ended 31December 2012.5. To re-appoint Messrs KPMG as Auditors of the Company and to authorise theDirectors to fix their remuneration.Ordinary Resolution 1Ordinary Resolution 2Ordinary Resolution 3Ordinary Resolution 4Ordinary Resolution 5As Special Business:To consider and if thought fit, to pass with or without modifications, the followingResolutions:6. Retention of Dato’ Ab Halim Bin Mohyiddin as Independent DirectorOrdinary Resolution 6“THAT in accordance with the Malaysian Code on Corporate Governance 2012(“MCCG 2012”), Dato’ Ab Halim Bin Mohyiddin be and is hereby retained as anIndependent Non-Executive Director of the Company and to hold office untilconclusion of the next Annual General Meeting.”7. Authority to allot shares pursuant to Section 132D of the Companies Act1965:Ordinary Resolution 7“THAT subject to the Companies Act 1965 and the Articles of Association of theCompany, the Directors be and are hereby empowered, pursuant to Section 132Dof the Companies Act 1965, to allot and issue shares in the Company at any timeand upon such terms and conditions and for such purposes as the Directors may,in their absolute discretion deem fit, provided that the aggregate number of sharesto be issued does not exceed ten percent (10%) of the issued and paid-up sharecapital of the Company for the time being and that the Directors be and are alsoempowered to obtain the approval for the listing of and quotation for the additionalshares so issued on Bursa Malaysia Securities Berhad AND THAT such authorityshall continue to be in force until the conclusion of the next Annual General Meetingof the Company.”

4KNM GROUP BERHAD I Annual Report 2012Notice of Annual General Meeting (cont’d)8. Proposed renewal of shareholders’ mandate for share buy-back:Ordinary Resolution 8“THAT subject to the Company’s compliance with all the applicable rules,regulations, orders and guidelines made pursuant to the Companies Act 1965(“the Act”), the Company’s Memorandum and Articles of Association and BursaMalaysia Securities Berhad (”Bursa Securities”) Main Market Listing Requirements(“Listing Requirements”), approval be and is hereby given to the Company topurchase at any time such amount of ordinary shares of RM1.00 each in theCompany as may be determined by the Directors of the Company from time totime through Bursa Securities upon such terms and conditions as the Directorsin their absolute discretion deem fit and expedient in the interest of the Company(“Proposed Share Buy-Back Mandate”) provided that:(i)(ii)(iii)the aggregate number of ordinary shares which may be purchased andretained as treasury shares by the Company at any point of time pursuantto the Proposed Share Buy-Back Mandate shall not exceed ten percent(10%) of the total issued and paid-up share capital of the Company;the amount of funds to be allocated by the Company pursuant to theProposed Share Buy-Back Mandate shall not exceed the retained earningsand/or share premium of the Company as at 31 December 2012; andthe shares so purchased by the Company pursuant to the Proposed ShareBuy-Back Mandate may at the discretion of the Directors be:(a)(b)(c)(d)(e)retained as treasury shares; and/orcancelled; and/orresold on the market of Bursa Securities in accordance to ListingRequirements; and/ordistributed as dividends to the shareholders; and/ordealt with in any other manner as prescribed by the applicablerules, regulations and orders made pursuant to the Act, the ListingRequirements and any other relevant authority for the time being inforce;AND THAT such authority conferred by the shareholders of the Company uponpassing of this resolution pertaining to the Proposed Share Buy-Back Mandatewill continue to be in force until the conclusion of the next Annual General Meetingof the Company, unless by a resolution passed at that meeting, the authority isrenewed; or the expiration of the period within which the next Annual GeneralMeeting is required to be held pursuant to Section 143(1) of the Act (but mustnot extend to such extensions as may be allowed pursuant to Section 143(2) ofthe Act); or until the authority is revoked or varied by a resolution passed by theshareholders in a general meeting, whichever occurs first;AND THAT the Directors of the Company be and are hereby authorised to completeand do all such acts and things as they may consider expedient or necessary toimplement and give effect to the Proposed Share Buy-Back Mandate.”

KNM GROUP BERHAD I Annual Report 20125Notice of Annual General Meeting (cont’d)9. Proposed shareholders’ mandate for recurrent related party transactionsof a revenue or trading nature:Ordinary Resolution 9“THAT approval be and is hereby given to the Company and/or its subsidiaries(“KNM Group”) to enter into all arrangements and/or transactions involving theinterests of Directors, major shareholders or persons connected with the Directorsand/or major shareholders of KNM Group (“Related Parties”) as specified insection 2.4 of the Circular to Shareholders dated 5 June 2013 provided that sucharrangements and/or transactions are:(i)(ii)(iii)(iv)recurrent transactions of a revenue or trading nature;necessary for the day-to-day operations;carried out in the ordinary course of business on normal commercial termswhich are not more favourable to Related Parties than those generallyavailable to the public; andare not to the detriment of minority shareholders,(“Proposed Recurrent RPT Mandate”);AND THAT such authority conferred by the shareholders of the Company uponpassing of this resolution pertaining to the Proposed Recurrent RPT Mandate willcontinue to be in force until the conclusion of the next Annual General Meetingof the Company, unless by a resolution passed at that meeting, the authority isrenewed; or the expiration of the period within which the next Annual GeneralMeeting is required to be held pursuant to Section 143(1) of the Act (but mustnot extend to such extensions as may be allowed pursuant to Section 143(2) ofthe Act); or until the authority is revoked or varied by a resolution passed by theshareholders in a general meeting, whichever is the earlier;AND THAT the Directors of the Company be and are hereby empowered tocomplete and to do all such acts and things including executing all such documentsas may be required as they may consider expedient or necessary to give effectto the Proposed Recurrent RPT Mandate.”10. To transact any other business of which due notice shall have been given.By Order of the BoardFariz Bin Abdul Aziz (LS 0007997)Lau Bee Gee (MAICSA 0817743)Company SecretariesSeri Kembangan5 June 2013

6KNM GROUP BERHAD I Annual Report 2012Notice of Annual General Meeting (cont’d)Notes:(i)(ii)(iii)(iv)(v)(vi)(vii)This Agenda item is meant for discussion only and is not put forward for voting as the provision of Section 169(1) of theCompanies Act 1965 (“the Act”) does not require a formal approval of the shareholders.A proxy may but need not be a member of the Company and the provisions of Section 149(1)(b) of the Act shall not applyto the Company.A member shall not, subject to paragraph (iv) below, be entitled to appoint more than two (2) proxies to attend and vote at thesame meeting. Where a member appoints more than one (1) proxy to attend and vote at the same meeting, the appointmentshall be invalid unless he/she specifies the proportions of his/her holdings to be represented by each proxy.Where a member of the Company is an exempt authorised nominee as defined under the Securities Industry (CentralDepositories) Act 1991 which holds ordinary shares in the Company for multiple beneficial owners in one securities account(“omnibus account”), there is no limit to the number of proxies which the exempt authorised nominee may appoint in respectof each omnibus account it holds.To be valid, the form of proxy duly completed must be deposited at the registered office of the Company at 15 Jalan DagangSB 4/1, Taman Sungai Besi Indah, 43300 Seri Kembangan, Selangor Darul Ehsan, Malaysia not less than forty-eight (48)hours before the time for holding the meeting or any adjournment thereof.The instrument appointing a proxy shall be in writing under the hand of the appointer or of his/her attorney duly authorisedin writing or if the appointer is a corporation, either under its common seal or under the hand of its officer or attorney dulyauthorised.In respect of deposited securities, only members whose names appear in the Record of Depositors on 20 June 2013 shallbe eligible to attend the Meeting or appoint proxies to attend and vote in his/her stead.EXPLANATORY NOTES ON SPECIAL BUSINESS1. Retention of Dato’ Ab Halim Bin Mohyiddin as an Independent DirectorDato’ Ab Halim Bin Mohyiddin (“Dato’ Ab Halim”) was appointed as Independent Non-Executive Director on14 June 2003 and was subsequently designated as Senior Independent Non-Executive Director on 29 June2011. Thereafter, he was re-designated to act as Chairman of the Company on 29 April 2013.Although he has exceeded the maximum tenure of nine (9) years as an Independent Director as prescribedby the MCCG 2012, the Board, after having assessed the recommended independence of Dato’ Ab Halim,considers him to be independent based on inter alia, the following justifications and recommends that Dato’ AbHalim be retained as an Independent Non-Executive Director of the Company in respect of Ordinary Resolution6:-(a)(b)(c)(d)(e)He has confirmed and declared that he is an Independent Non-Executive Director as defined underParagraph 1.01 of Bursa Malaysia Securities Berhad Main Market Listing Requirements;He is not related to any of the Company’s directors or major shareholders;He does not have any conflict of interest with the Company and has not entered/is not expected to enterinto contract(s) especially material contract(s) with the Company and/or its subsidiary companies;He is currently not sitting on the board of any other public and/or private companies having the samenature of business as that of the Company and its subsidiary companies;His experience and knowledge of the Company and the Group’s activities and corporate history isinvaluable to the Board. The Board is also of the view that his impartial opinion and advice in his role asthe Company’s Chairman and Chairman of the Company’s Audit and Nomination Committees will bebeneficial to the Board and the Company too.

KNM GROUP BERHAD I Annual Report 20127Notice of Annual General Meeting (cont’d)2. Authority to allot shares pursuant to Section 132D of the Companies Act 1965(a)(b)(c)The shareholders’ general mandate sought under the proposed Ordinary Resolution 7 is a renewal ofthe relevant shareholders’ general mandate obtained in the previous Company’s 10th Annual GeneralMeeting held on 26 June 2012 (“Previous Mandate”) and such authority will lapse at the conclusion ofthe forthcoming 11th Annual General Meeting to be held on 27 June 2013.As at the date of this Notice, no new shares in the Company were issued pursuant to the PreviousMandate.The Board continues to consider any opportunities to broaden the operating base and earnings potentialof the Company. If any fundraising or merger and acquisition or expansion or diversification proposals,as the case may be, involve the issuance of new shares, the Directors would have to convene a generalmeeting to approve the issuance of new shares.In order to eliminate any delay and costs involved in convening a general meeting to approve suchissuance of shares, it is considered appropriate that the Directors be empowered, as proposed in OrdinaryResolution 7, if passed, will give flexibility and expediency to the Company to allot and issue up to tenpercent (10%) of the issued share capital of the Company for the time being for such purposes as theDirectors deem fit and in the best interest of the Company. This authority, unless revoked at a generalmeeting, will expire at the conclusion of the next annual general meeting of the Company.3. Proposed renewal of shareholders’ mandate for share buy-backThe proposed Ordinary Resolution 8, if passed, will renew the shareholders’ mandate for share buy-backobtained at the previous Company’s 10th Annual General Meeting held on 26 June 2012 and empower theCompany to purchase the Company’s shares up to ten percent (10%) of the issued and paid-up share capitalof the Company.4. Proposed shareholders’ mandate for recurrent related party transactions of a revenue or trading natureThe proposed Ordinary Resolution 9, if passed, will allow the Group to enter into recurrent transactionsinvolving the interests of Directors, major shareholders or persons connected with the Directors and/or majorshareholders of KNM Group, which are of a revenue or trading nature and necessary for the Group’s day-todayoperations.Further information on the Proposed Share Buy-Back Mandate and the Proposed Recurrent RPT Mandate is setout in the Statement/Circular to Shareholders dated 5 June 2013 which is despatched together with the Company’sAnnual Report 2012.STATEMENT ACCOMPANYING NOTICE OF ANNUAL GENERAL MEETINGThe particulars of all Directors including those standing for re-election as Directors at the 11th Annual GeneralMeeting (Resolutions 1, 2, 3 and 6) are set out in their respective Profiles of Directors and information relating to theDirectors’ interests in shares and warrants in the Company and its related corporations is presented in the Analysisof Shareholdings and Warrantholdings in the Annual Report 2012.

8KNM GROUP BERHAD I Annual Report 2012Corporate Structureas at 20 May 2013Group Berhad100%KNM China Pte Limited100%KNM Eurasia Sdn Bhd100%KNM Management Services Sdn Bhd100%Prestige International Ltd100%KNM Process System Sdn Bhd100%KNM Capital Labuan Limited70%KNM HMS Energy Sdn Bhd70%BorsigCompression(China) PteLimited70%BorsigValves(China) PteLimited100%KNM ProcessSystems(Kazakhstan)Sdn Bhd100%KNM ProcessSystems(Turkmenistan)Sdn Bhd100%KNM ProcessSystems(Uzbekistan)Sdn Bhd100%DeutscheKNMGmbH100%KNMTechnicalServicesSdn Bhd100%KNMSSistemas deProcessamentodo Brasil Ltda100%PerwiraAwanSdn Bhd51%BorsigIndustrialServicesSdn Bhd100%KNMOGPET(East Coast)Sdn Bhd51%BorsigBoilerSystemsSdn Bhd86%KNM-DPFabricatorsSdn Bhd100%KNMExoticEquipmentSdn Bhd50%KPNGasTechnologySdn Bhd100%BorsigBeteiligungsverwaltungsgesellschaftmbH99.37%KNMEquipamentosSA97.34%KNMIndustrialLtda84.03%KNMServicosLtda40%DimensiBumijayaSdn Bhd51%KNM-DPHarta BinaSdn Bhd100%KNM PowerSdn Bhd0.63%2.66%15.97%49%30%100%Borsig GmbH100%PoplarInvestmentsLimited100%100%100%100%100%30%Borsig ZMCompressionGmbHBorsigProcess HeatExchangerGmbHBorsigMembraneTechnologyGmbHBorsigBoilerSystemsGmbHBorsig ServiceGmbH49%49%100%BorsigCompressorParts GmbH51%GMTMembrantechnikGmbH14.13%PolyAnGesellschaft zurHerstellung vonPolymeren fürspezielleAnwendungenund Analytik mbH

KNM GROUP BERHAD I Annual Report 2012Corporate Structureas at 20 May 2013 (cont’d)9100%KNM Services (Singapore) Pte Ltd40%Petrosab Petroleum Sdn Bhd100%KNM Capital Sdn Bhd51%Litwin Asia Pacific Sdn Bhd100%KNM International Sdn Bhd100%KNM Renewable Energy Sdn Bhd1%100%KNM PtyLtd100%SumberAmantechSdn Bhd100%DurationEngineeringSdn Bhd100%KNMEuropa BV80%KNM OGPET(Sabah)Sdn Bhd70%KNMPetrosabEngineeringSdn Bhd100%KNM Oil &Gas (B)Sdn Bhd100%KNM GlobalLtd100%KNMEngineeringSevicesPrivateLimited100%KNMOverseas(China)Sdn Bhd100%PT KPEIndustries51%Saudi KNMLtd50%VerwaterKNMSdn Bhd49.9%KNM Grinaker-LTA(Proprietary)Limited48%KimmaThai Co Ltd100%KNM-CWSdn Bhd30%100%W.E. SmithEngineeringPty Ltd100%HEAAustraliaPty Ltd100%PT HeatExchangersIndonesia100%KNMCorporation100%FBMHudsonItalianaSpA100%FBM IcossSrl100%KNM ProjectServicesLimited100%KNMTechnicalServices LLC100%KNM SpecialProcessEquipment(Changshu)Co Ltd48%51%KNMProjects(Thailand) CoLtd1%100%100%100%49%7%80%KNMIndustries IncKPC IncKNMProcessEquipmentIncFBM-KNMFZCOByelkamitJSCEnergy ParkInvestmentsLimited77.78%100%100%KPSTechnology &EngineeringLLCKPSTechnologyGroup LLCEnergy ParkPeterboroughLimited51%

10KNM GROUP BERHAD I Annual Report 2012KNM at a Glance

KNM GROUP BERHAD I Annual Report 20125-Year Group Financial Highlights112012 2011 2010 2009 2008Revenue (RM’000) 2,377,530 1,963,778 1,559,103 1,839,575 2,528,750Profit/(Loss) Before Tax (RM’000) 21,036 (155,882) 46,510 138,114 453,721Profit/(Loss) After Tax (RM’000) 80,088 (93,782) 122,473 257,847 336,232Earnings/(Loss) Before Interest, Tax,Depreciation and Amortisation (RM’000) 202,720 (12,614) 189,855 323,146 584,212Shareholders’ Equity (RM’000) 1,832,709 1,609,625^ 1,723,011^ 2,008,686 1,813,893Basic Earnings/(Loss) Per Share (sen) 7.90 (9.38) 12.02 26.29* 8.80*Net Assets Per Share (RM) 1.23 1.61 1.72 0.50 0.46Notes:* The comparative figure for Earnings Per Share (“EPS”) for the financial year 2009 has been restated after taking intoconsideration the share consolidation exercise in financial year 2010 involving the consolidation of every 4 ordinary sharesof RM0.25 each in KNM Group Berhad into 1 ordinary share of RM1.00 each (“Share Consolidation”). No adjustments weremade to the comparative figures for EPS for financial year 2008 as a result of the Share Consolidation.^The comparative figure for Shareholders’ Equity for the financial year 2011 and 2010 have been restated after taking intoconsideration the effect of Malaysian Financial Reporting Standards 1. For financial year 2008, 2009 and 2010, the financialstatements has been prepared under Financial Reporting Standards (FRS).Revenue (RM’000)Profit/(Loss) After Tax (RM’000)2,528,7502,377,5301,839,5751,963,778336,232257,8471,559,103122,47380,088(93,782)2008200920102011201220082009201020112012Earnings/(Loss) Per Share* (sen)Shareholders’ Equity (RM’000)26.29*12.028.80*7.902,008,6861,813,893 1,832,7091,723,011^1,609,625^(9.38)2008200920102011201220082009201020112012

12KNM GROUP BERHAD I Annual Report 2012Chairman’s MessageDear Valued Shareholders,On behalf of the Board of Directors’ of KNM Group Berhad (“KNM” or “the Group” ), it gives megreat pleasure as the new appointed Chairman of the Group to present to you the Annual Reportand Audited Financial Statements of the Group for the financial year ended 31 December 2012.I am pleased to announce the turnaround of the Group’s results during FYE2012 with a revenueof RM2.38 billion, a 21.43% increase compared to the RM1.96 billion recorded last year. Thistranslates to a Profit Before Tax (“PBT”) of RM21.04 million, compared to RM155.88 millionloss registered during FYE2011. There is still much for us to do as we look to improve furtheron these results in the years to come despite the positive turn around for FYE2012.CORPORATE DEVELOPMENTSDuring the second half of FYE2012, the Group had completed a two-call rights issue exercise that raised approximatelyRM195.57 million to commensurate our funding requirements as well as the Group’s working capital. I am pleasedto note that the issuance was oversubscribed by 31.45% and sincerely thank our shareholders who have subscribedfor these shares. The trust shown by our shareholders had provided further encouragement and motivation for usto strive harder as we work towards greater success for the Group.During the year under review, we further announced our intention to list the Group’s wholly-owned German subsidiary,the BORSIG Group on the Singapore Stock Exchange. Besides unlocking the intrinsic value in BORSIG, the proposedexercise will also augur well for the BORSIG Group as part of the proceeds will be utilised for BORSIG’s expansion.The ever changing economic landscape currently experienced in Europe is something that we need to consider verycarefully to ensure that we can reap the full benefits of this exercise.FINANCIAL HIGHLIGHTSFYE2012 also saw overall improvements in the Group’s financial performance. The Group’s Earnings Before Interest,Tax, Depreciation and Amortisation (“EBITDA”) rose to RM202.72 million compared to the negative EBITDA ofRM12.61 million registered in the previous financial year. The Group further posted a Profit After Tax and Minorityinterest (“PATAMI”) of RM82.03 million compared to the RM91.77 million loss recorded in FYE2011.Compared to the previous year, the higher Revenue, EBITDA, PBT and PATAMI during the year were mainly dueto higher job progress recognition on stronger order book and stable contribution margin from projects secured.OPERATIONAL HIGHLIGHTSProcess EquipmentThe process equipment business units have shown improving margins with more reasonable competition than in2010/2011. I am pleased to inform that due to the hard work and dedication of our staff, we have been fairly successfulin securing more profitable contracts for the Group which has contributed to the better results during FYE2012.In contrast, the Europe segment has remained consistent in delivering good results for this division, with demandfor our higher-end products remained strong. With the anticipated listing of the BORSIG Group and the plannedexpansion of its operations on the cards, we see the potential for our Europe segment to grow significantly in the future.

KNM GROUP BERHAD I Annual Report 201213Chairman’s Message (cont’d)Renewable EnergyFYE2012 saw the Group completing the £25 million acquisition of Poplar Investments Limited, the special purposevehicle that owns the site for the proposed 80MWe Waste to Energy Project in Peterborough, United Kingdom. Withplanning approvals already in place, we are continuing with our efforts to secure financial close for the project. Inview of the size and complexity of the proposed development, the Group plans to execute the development in phasesto better address and mitigate the development and construction risks usually associated with a project of this size.While we remain confident that the project will have a positive effect on the Group’s financials in the long run, theproject financing is taking more time than expected due to other factors such as the economic uncertainty in Europe.Total SolutionsThe Group is also continuing with its effort to diversify its operations from being a traditional process equipmentmanufacturer to a provider of total solutions for modular process units in the oil and gas processing and energy sectors.On this note, the Group continues to sign in more orders in Engineering & Supply Contracts for Lukoil in Uzbekistanand Titan in Malaysia. The award of the contract by TAIF-NK for its Sulphur Recovery Unit for the Heavy ResidueConversion Complex located at Nizhnekamsk, Republic of Tatarstan, Russian Federation in February 2013 witha contract value of about USD100 million serves as a welcome boost for the Group in respect of this businesssegment. The contract is expected to contribute positively towards the Group’s future earnings and further reinforceour reputation as a global player with potential for growth in this business segment.Further in respect of this business segment, the Group is aggressively prequalifying for the Petronas’ Refinery andPetrochemical Integrated Development (“RAPID”) EPCC Projects on the Refinery and the Cogeneration Plant withreputable partners such as Sinopec, HQCEC, Mitsui and GS E&C and will also continue to prequalify for otherpackages.CORPORATE GOVERNANCEThe Board of Directors would like to assure our shareholders that the Group is fully committed to maintaining thestandards of corporate governance as set out in the Malaysian Code on Corporate Governance 2012.The Board believes that sustainable growth and long-term shareholder value can only be attained with high standardsof corporate governance, comprising the practices of transparency, accountability, integrity and the highest standardsof professionalism, expertise and technical know-how.These measures are further described in the Corporate Governance Statement section of this Annual Report.FUTURE PROSPECTSAs at the close of FYE2012, the Group’s order book stood at RM4.8 billion out of which RM2.7 billion are for projectsrelated to waste to energy that are pending financial close. With a tender book of about RM19 billion in the pipelineexcluding prospective contracts from the RAPID projects, the Group can look forward to a healthy revenue stream inthe years to come. Having said this, we need to continue with our efforts to rationalise our plant operations worldwideand to further improve on efficiency and better management of our existing resources in order to extract maximumreturns from our traditional equipment manufacturing business. We will also seek to grow our total solutions andmodular process units business by strengthening our resources, knowledge and experience in EPCC related works.The proposed renewable energy project in Peterborough, United Kingdom also serves as an interesting prospectfor the Group as we take measured steps towards the development of our own plant and with prudence and carefulrisk management, we can look forward to establishing a new revenue stream for the Group in the future.As far as the market for our product and services are concerned, the oil and gas industry outlook remains positivewith sizeable investments being made by major oil and gas players to cater for the growing demand. The RAPIDproject is one that is poised to become a major oil and gas hub in the region. Located in Pengerang, the SouthEastern tip of the State of Johor, RAPID is a prime project on 2,000 hectares of land which will be larger than allthe other PETRONAS hubs in Kerteh, Melaka and Gebeng combined. With KNM’s comprehensive knowledge andcapability coupled with well-versed international experience, we believe that KNM is well positioned to capitalise onarising opportunities from this mega project as well as other opportunities around the world.

14KNM GROUP BERHAD I Annual Report 2012Chairman’s Message (cont’d)APPRECIATIONOn behalf of the Board, I wish to express our thanks and appreciation to the management and staff who throughtheir hard work and dedication, has helped the Group to navigate a turnaround from the disappointing results ofFYE2011 as we call upon them to ensure that the positive results in FYE2012 can be sustained and improved uponin the years to come.To our valued Shareholders, the Board of Directors and I thank you for your continued support, confidence and trustin us. We will continue to persevere, strive and work hard for the creation and preservation of shareholder value inthe Group.A note of thanks and appreciation is also in order as we say farewell to YBhg Datuk Karunakaran who has leftthe Board in February 2013 as he took up an appointment on the Board of Bursa Malaysia. At the same time, wewelcome the latest addition to the Board, Ms Soh Yoke Yan who is an accomplished accountant as our independentnon-executive director. We look forward to her contribution both as a Board member as well as a member of theGroup’s Audit, Remuneration and Nomination Committees. Ms Soh’s profile can be found in the Director’s Profilesection of this Annual Report.YBhg Dato’ Ab Halim bin Mohyiddin, DPMSChairman

KNM GROUP BERHAD I Annual Report 2012Profile of Directors15DATO’ AB HALIM BIN MOHYIDDIN, DPMSIndependent Non-Executive Chairman, aged 67, MalaysianDato’ Ab Halim bin Mohyiddin was appointed to the Board of KNM Group Berhad on 14 June 2003 as IndependentNon-Executive Director and was subsequently designated as a Senior Independent Non-Executive Director on 29June 2011. Thereafter, he was re-designated to act as Chairman of the Company on 29 April 2013.He graduated with a Bachelor of Economics (Accounting) from University of Malaya in 1971 and thereafter joinedUniversiti Kebangsaan Malaysia as a Faculty Member of the Faculty of Economics. He obtained his Masters ofBusiness Administration degree from University of Alberta, Edmonton, Alberta, Canada in 1973. He retired fromKPMG/KPMG Desa Megat & Co. on 1 October 2001, a firm he joined in 1977 and had his early accounting training inboth Malaysia and United States of America. He was made partner of the Firm in 1985. At the time of his retirement,he was Partner-in-Charge of the Assurance and Financial Advisory Services Divisions and was also looking afterthe Secured e-Commerce Practice of the firm. He has extensive experience in tax, audit, corporate turnaround andfinancial restructuring of various companies and has also acted as receiver and manager and liquidator for severalcompanies during his tenure with KPMG.Dato’ Ab Halim is a member of the Malaysian Institute of Certified Public Accountants (MICPA) and Malaysian Instituteof Accountants (MIA). He is currently the Chairman of the Education and Training Committee of MICPA. He servedas a member of the Education Committee of the International Federation of Accountants (IFAC) from 2001 to 2005.He was the President of the MICPA from June 2004 to June 2007 and a council member of MIA from 2001 to 2007.Presently, he is a Board member of Amway (Malaysia) Holdings Berhad, Digi.Com Berhad and Petronas Gas Berhad.Dato’ Ab Halim is the Chairman of the Audit Committee and Nomination Committee and is a member of theRemuneration Committee.IR LEE SWEE ENGExecutive Director/Chief Executive Officer, aged 57, MalaysianIr Lee Swee Eng founded the KNM Group in 1990 as a private company specializing in fabrication and manufacturingof process equipment for the oil and gas industry and developed it into a global leading manufacturer of processequipment not only for the oil, gas and petrochemical industry but also in the mineral processing, power, desalinationand environmental sectors. He is responsible for overseeing the strategic direction and management of the Group’soperations and was appointed Group Managing Director of KNM Group Berhad on 14 June 2003. He has beenre-designated as Executive Chairman/Chief Executive Officer on 3 September 2010. He remains the ExecutiveDirector/Chief Executive Officer of the Company although he had relinquished his position as Executive Chairmanof KNM Group Berhad on 29 April 2013.Ir Lee Swee Eng graduated in 1979 with a Bachelor of Science (First Class Hons) in Mechanical Engineering fromthe University of Strathclyde in Glasgow, Scotland. He had served with Exxon in 1976 as a Production Specialistand with Petronas, the Malaysian National Oil Corporation from 1979 to 1985 in various capacities ranging fromProduction Engineer, Project Development Engineer and Resident Engineer to Project Leader for major oil andgas development projects. He worked with John Brown E & C Inc of USA as a Project Engineer on internationalassignments for its San Miguel Project, Bakersfield California in 1986 and subsequently joined the Technip Group’sMalaysian subsidiary, Technip Geoproduction (Malaysia) Sdn Bhd as its Director and eventually, Managing Directorfrom 1986 to 1990.He is a Registered Professional Engineer since 1984 and a Fellow of the Institution of Engineers, Malaysia andInstitute of Materials Malaysia. He has been a Council Member of the Federation of Malaysian Manufacturers (FMM)since 1996, and had served as a member of the Executive Committee of the Malaysian Iron and Steel IndustryFederation (MISIF) from 2000 to 2004. He was the founding Chairman of the MISIF Boilers and Pressure VesselsGroup and the Institution of Engineers, Malaysia Oil and Gas Technical Division. He was elected a Member of theInternational Council of Pressure Vessels Technology as representative from Malaysia from 2000 to 2004. He wasappointed a Board member of the Malaysian German Chamber of Commerce and Industry on 30 June 2011 andassumes the role of President as at to-date. Currently, he is also an Industry Advisory Panel Member for the UniversitiTunku Abdul Rahman’s Faculty of Engineering and Science.Ir Lee Swee Eng also serves as a member of the Remuneration Committee. He is not a Director of any other publiccompany.Ir Lee Swee Eng is the spouse of Gan Siew Liat and the brother-in-law to Chew Fook Sin.

16KNM GROUP BERHAD I Annual Report 2012Profile of Directors (cont’d)DATO’ DR KHALID BIN NGAHSenior Independent Non-Executive Director, aged 66, MalaysianDato’ Dr Khalid Bin Ngah was appointed to the Board of KNM Group Berhad on 19 August 2011 as IndependentNon-Executive Director and re-designated as a Senior Independent Non-Executive Director on 29 April 2013.Dato’ Dr Khalid Bin Ngah graduated in 1970 with a Bachelor of Science (Hons) in Geology from the Carleton Universityin Ottawa, Canada. Thereafter, he obtained his Master of Science degree in Petroleum Geology from OklahomaState University, USA, in 1975 under the Malaysian Federal Government’s sponsorship. He then furthered his tertiaryeducation and completed his doctorate PhD degree in Petroleum Geology from the Imperial College, University ofLondon, UK, under the Petronas sponsorship in 1990.He first served with the Malaysian Geological Survey Department as the State Geologist for Negeri Sembilan beforemoving to Petronas, the Malaysian National Oil Corporation from 1975 to 1997, and held various technical andmanagerial positions from Senior Geologist to Area Manager for Sabah and Sarawak. He was actively involved inthe development of national oil and gas policies leading to the development of PSC contract documents.After obtaining his doctorate degree, he returned to serve Petronas as its General Manager of Exploration andProduction Research, with emphasis on determining oil and gas resource potentials and techniques to enhanceoil and gas recoveries before opting for optional retirement in 1997. He was also the External Examiner for UTMSkudai, Johor (1995-1997) and was previously appointed as Joint Managing Director of Kedah Cement Berhad andExecutive Chairman of FPSO Tech Sdn Bhd. He was formerly an Independent Director of Eastern Pacific IndustrialCorporation (EPIC) Berhad too.Currently, he is the Chairman of Tubex Sdn Bhd, a subsidiary of EPIC Berhad. He is also a board member of KNMHMS Energy Sdn Bhd and Tati Production Sdn Bhd, a subsidiary of TATIUC (Tati University College of Terengganu).He is a member of the American Association of Petroleum Geologists (AAPG) and a life member and past presidentof the Geological Society of Malaysia. He was awarded the Achievement Award from AAPG in 1994 for “Advancementin Malaysian Petroleum Industry and for Contribution to AAPG as Regional Advocate”.Dato’ Dr Khalid is not a Director of any other public company.Dato’ Dr Khalid is the Chairman of the Remuneration Committee and is a member of the Audit Committee andNomination Committee.SOH YOKE YANIndependent Non-Executive Director, aged 45, MalaysianSoh Yoke Yan was appointed to the Board as an Independent Non-Executive Director of KNM Group Berhad on 14March 2013.Ms Soh is a holder of Chartered Institute of Management Accountant (CIMA, UK) and Diploma in ManagementAccounting with Tunku Abdul Rahman College. She is also a member of Malaysian Institute of Accountants (CA,MAL) and Associate Member of Chartered Management Accountant (ACMA, UK). She was engaged with public listedcompanies of different industries and has more than 15 years of corporate and commercial accounting experiences.She joined Isyoda Corporation Berhad as a Financial Controller in 2003 prior to her appointment as an ExecutiveDirector of Isyoda Corporation Berhad in 2006. She is also an Independent Non-Executive Director of DKLS IndustriesBerhad since 2001 and also sits on the Board of several other private limited companies.She is also a member of the Audit Committee, Nomination Committee and Remuneration Committee of the Company.

18KNM GROUP BERHAD I Annual Report 2012Corporate Governance StatementThe Board of Directors of KNM Group Berhad (“the Board”) is guided and committed to continuously uphold theprinciples and best practices and to attain high standards of good corporate governance within the Group. Thefollowing paragraphs set out the manner in which the Group has complied with the principles and recommendationsof the Malaysian Code on Corporate Governance 2012 throughout the financial year ended 31 December 2012, saveand except for the recommendation that the tenure of an independent director should not exceed a cumulative termof nine (9) years, for which approval from the Company’s shareholders would be sought at the forthcoming annualgeneral meeting for the respective director concermed to be retained as an Independent Director.The Company’s Board Charter may be gleaned from its website at www.knm-group.com too.THE BOARDRole and Principal ResponsibilitiesThe Company is headed by the Board who leads and controls the Company. Generally, the Board is responsibletowards the overall strategic planning for the Group. It also participates in setting policies and directing the Company’sstrategic objectives, providing leadership and oversight control, reviewing the adequacy and integrity of the Group’srisk management and internal control systems, ensuring a management succession plan as well as having a dedicatedinvestor relations programme and shareholders’ communication policy in place.As managing and controlling companies have become more complex and demanding, where appropriate, the Boardresorts to the various Board Committees to assist the Board in discharging its duties and responsibilities. The existenceof Board Committees does not diminish the Board’s responsibility for the affairs of the Company as the Board willreview the recommendations of the various Board Committees (for example the Audit Committee, RemunerationCommittee and Nomination Committee) as well as the feedbacks from the management.However, certain key matters are reserved to be determined by the Board. These include, determining overall corporatestrategy and business direction, formulating the annual business plan to enhance the Company’s business growth andcreate shareholders’ value, determining funding needs and capital expenditure, setting financial plans and budgets,reviewing financial statements and financial performance of the Company, ensuring necessary financial and otherresources allocation to the management to facilitate successful strategy implementation as well as undertaking ofcorporate exercises involving mergers and acquisitions, new issues of securities, fund raising activities and so on.Constituting an Effective BoardThe establishment of an active and independent Board of Directors is paramount in improving corporate governancepractices. The Board currently comprises six (6) Directors, three (3) of whom are Executive Directors while theothers are Independent Non-Executive Directors. Independent Non-Executive Directors make up one-half of theBoard membership.Together, the Board members with their different age, financial, commercial, technical and operational expertiseas well as business acumen and skills, bring with them a wide and diverse range of experience essential in themanagement and direction of the Company. In view of the composition of the Board and having regard to the calibreof the Directors and their range of skills, expertise and experience, the interest of investors, including the Company’sminority shareholders, is adequately protected and advanced. The profiles of the members of the Board are set outin the Profile of Directors section of this Annual Report.There is a separation in the functions, roles and positions of the Chairman and Chief Executive Officer to promoteaccountability and facilitates division of responsibilities between them. The Chairman is responsible for ensuringBoard effectiveness, including ensuring all Directors receives timely and sufficient relevant information on financial,business, operational and corporate matters to enable each of them to actively and effectively participate in Boarddecisions. The Chairman encourages constructive and healthy debates and ensures that resolutions are circulatedand deliberated so that all Board decisions reflect the collective view of the Board and not the views of an individualor small group of individuals.The Group’s Chief Executive Officer, Ir Lee Swee Eng is responsible for the efficient and effective day-to-daymanagement of the business, operations and strategic direction of the Group and together with the other ExecutiveDirectors ensures that the policies and matters approved by the Board are effectively implemented.

KNM GROUP BERHAD I Annual Report 201219Corporate Governance Statement (cont’d)The Independent Non-Executive Directors are independent of management and are free from any and all businessor other relationship which may materially affect or interfere with the exercise of their independent judgment. Therole of the Non-Executive Directors is to constructively review and help develop proposals on strategy, scrutinisethe performance of management in meeting agreed objectives, as well as monitoring the reporting of the Group’sperformance including satisfying themselves on the integrity of financial information, financial control and riskmanagement systems put in place by the Company are effective. Any queries or concerns regarding the Group maybe conveyed to Dato’ Ab Halim bin Mohyiddin, the present Chairman or any other Independent Director.Board Meetings and Supply of InformationThe Board meets on a scheduler basis of at least four (4) times a year. Additional Board meetings will be convenedas and when necessary. Dates for Board meetings are decided in advance after consultation with all Board members.In 2012, nine (9) Board meetings were held. The attendance of each Director at the Board meetings held during2012 is set out below:-Number of meetings attended %Dato’ Ab Halim bin Mohyiddin* 8/9 89Ir Lee Swee Eng* 9/9 100Datuk Karownakaran @ Karunakaran a/l Ramasamy # 9/9 100Dato’ Dr Khalid bin Ngah* 9/9 100Gan Siew Liat 7/9 78Chew Fook Sin 8/9 89Notes:* Dato’ Ab Halim bin Mohyiddin has been re-designated as Chairman of the Company in place of Ir Lee Swee Eng who hasrelinquished his position as Chairman on 29 April 2013. Dato’ Dr Khalid bin Ngah was re-designated as Senior IndependentNon-Executive Director on 29 April 2013.# Subsequent to the financial year ended 31 December 2012, Datuk Karownakaran @ Karunakaran a/l Ramasamy hadresigned as the Company’s Independent Non-Executive Director on 13 February 2013 and Madam Soh Yoke Yan wasappointed as the Independent Non-Executive Director on 14 March 2013.The Board has a formal schedule of matters specifically reserved to it for decision to ensure that the direction andcontrol of the Company are firmly in the Board’s hand. In consultation with the Board, the Chief Executive Officer andthe respective committees and/or management team, where applicable, will develop the Group’s corporate objectivesand set out the limits of empowerment for management’s or committees’ authority, duties and responsibilities.The Board stresses on having timely reports and full access to quality information which is not just historical orfinancial oriented but information which goes beyond assessing the quantitative performance of the Company and/or the Group. The Board also looks at other information such as customer satisfaction, product and service quality,market share, market reaction and so forth thereby enabling each Board member to participate in Board deliberationsand decisions as well as discharge their duties effectively.The Chief Executive Officer as assisted by the Company Secretaries, undertakes primary responsibility for organizinginformation necessary for the Board to deal with at Board meetings as well as the circulation of Board papers to allBoard members in a timely manner to facilitate effective deliberations of matters brought up in meetings. Duringthe course of a meeting, proposals put forth by management to the Board for the Board’s deliberation and decisionare provided with written reports and supporting documents with due facts, analysis and recommendations. TheChairman ensures that all Board members are given ample opportunity to express their views and opinions during themeeting. Constructive debates on issues before the Board are highly encouraged. External parties and managementrepresentatives may present to provide additional insights into matters to be discussed during Board meetings.Advisers and professionals appointed by the Company in relation to any corporate proposals would be invited toattend Board meetings to explain, advise and clarify any issues raised.

20KNM GROUP BERHAD I Annual Report 2012Corporate Governance Statement (cont’d)The Board is briefed on issues raised at Board and Board Committees meetings. All discussions, decisions andconclusions are duly recorded in the minutes of meeting. Such minutes are subsequently circulated to ensure thatall Directors are kept well informed of the Board’s and Board Committees’ activities and recommendations. Theseminutes are kept by the Company Secretaries and are open to inspection by the Directors at any time.Appointments to the Board and Size of BoardAll appointments to the Board and its various Board Committees are assessed and considered by the NominationCommittee. In making these recommendations, due consideration is given to the required mix of skills, knowledge,expertise, experience, professionalism and integrity that the proposed candidate(s) shall bring to complement theBoard and/or Board Committees. The Board may also consider and exercise judgment in determining the appropriatenumber and size of the Board relative to the level of investment by the shareholders in the Company.Re-electionIn compliance with the Bursa Malaysia Securities Berhad Main Market Listing Requirements (“Listing Requirements”)and the provisions of the Company’s Articles of Association (“Articles”), all Directors of the Company shall retire fromoffice at least once in every three (3) years but shall be eligible for re-election at the annual general meeting. NewDirector(s) appointed during any year shall retire and seek re-appointment at the next annual general meeting. Thisprovides an opportunity for shareholders to renew their mandates and ensures that shareholders have a regularopportunity to reassess the composition of the Board.At the forthcoming annual general meeting, one-third of the Board of Directors are subject to retirement by rotationpursuant to the provisions of the Company’s Articles. The re-election of the Directors concerned will be voted onby shareholders at the said annual general meeting. To assist shareholders in their decision, information on eachDirector standing for re-election is set out in the Profile of Directors.THE BOARD COMMITTEESCurrently, there are three (3) standing Board Committees, comprising the Audit Committee, Nomination Committeeand Remuneration Committee. Each Board Committee operates within the approved and clearly defined termsof reference and reports to the Board with their findings and recommendations. Extension of such authority maybe expressly given for a specific purpose and the Board may delegate to such Board Committees or other ad hocCommittees to act on its behalf.Audit CommitteeAll the present Audit Committee members are Independent Directors. The Audit Committee is chaired by theIndependent Non-Executive Chairman who is a member of the Malaysian Institute of Accountants and the MalaysianInstitute of Certified Public Accountants. Its other members comprise the Independent Non-Executive Directors.The duties of the Audit Committee include inter alia, reviewing the Group’s accounting policies, financial reportingprocedures, the Group’s system of internal controls, status of the Group’s risks and approval of the annual internalaudit plan. In addition, all the Audit Committee members are able to read, analyse and interpret the quarterly resultsand year end financial statements from the external auditors in order to effectively discharge their functions.The Company’s internal and external auditors do attend at the Audit Committee meetings and they have the opportunityto raise matters or concerns independently or separately with the Audit Committee without the presence of anyExecutive Director or management staff. The Chairman and Audit Committee members have free and direct accessto consult, communicate and enquire with any senior management of the Company and the external and internalauditors of the Company at any time to stay informed of all matters affecting the Company.The Audit Committee has explicit authority to investigate any matter within its terms of reference and full access toall information and resources required. Further details of the terms of reference and activities of the Audit Committeeduring the year are set out in the Audit Committee Report.

KNM GROUP BERHAD I Annual Report 201221Corporate Governance Statement (cont’d)The Audit Committee meets regularly at least four (4) times annually and all discussions, decisions and conclusionsare duly recorded in the minutes of meeting. Additional meetings may be held at the request of the Board, the AuditCommittee, the management, the external and internal auditors. The Audit Committee met five (5) times in 2012and the attendance of each member at the meetings is set out below:-Number of meetings attended %Dato’ Ab Halim bin Mohyiddin (Chairman) 5/5 100Datuk Karownakaran @ Karunakaran a/l Ramasamy* 5/5 100Dato’ Dr Khalid bin Ngah 5/5 100Note:* Subsequent to the financial year ended 31 December 2012, Datuk Karownakaran @ Karunakaran a/l Ramasamy hadresigned as the Company’s Independent Non-Executive Director on 13 February 2013 and Madam Soh Yoke Yan wasappointed as the Independent Non-Executive Director and member of the Audit Committee on 14 March 2013.Nomination CommitteeThe Nomination Committee is chaired by the Independent Non-Executive Chairman. Its other members comprisethe Independent Non-Executive Directors. The Nomination Committee is mainly responsible for assessing andrecommending candidates with the required mix of skills and attributes to fill Board and Board Committees vacanciesas well as review or evaluate the appropriate balance, size, optimum mix of skills, experience and other qualitiesincluding core competencies which Non-Executive Directors will bring to the Board. The Nomination Committeerecommends to the Board the Directors who are seeking re-election subject to the approval of the shareholders atannual general meetings. The Nomination Committee also assesses on an annual basis the effectiveness of the Boardas a whole and the Board Committees as well as the respective individual Directors’ performance and contribution.All assessments and evaluations are duly discussed and recorded in the minutes of meeting.The Nomination Committee will meet at least once a year. In 2012, the Nomination Committee met up three (3) timesand the attendance of each member at the meetings is set out below:-Number of meetings attended %Dato’ Ab Halim bin Mohyiddin (Chairman) 3/3 100Ir Lee Swee Eng # 3/3 100Datuk Karownakaran @ Karunakaran a/l Ramasamy* 3/3 100Dato’ Dr Khalid bin Ngah 3/3 100Notes:* Subsequent to the financial year ended 31 December 2012, Datuk Karownakaran @ Karunakaran a/l Ramasamy hadresigned as the Company’s Independent Non-Executive Director on 13 February 2013 and Madam Soh Yoke Yan wasappointed as the Independent Non-Executive Director and member of the Nomination Committee on 14 March 2013.# Ceased as member of the Nomination Committee on 14 March 2013.Remuneration CommitteeThe Remuneration Committee is chaired by the Senior Independent Non-Executive Director. Its other memberscurrently comprise an Independent Non-Executive Chairman, Executive Director/Chief Executive Officer and anIndependent Non-Executive Director. The Remuneration Committee is responsible for recommending to the Board,the remuneration of the Executive Directors, in all its forms, drawing from outside advice as necessary. With theavailability of Directors remuneration policy and market survey information from external sources or human resourcesconsultants, the Remuneration Committee ensures that the remuneration packages of the Directors are appropriateand competitive. All recommendations of the Remuneration Committee in respect of remuneration packages of theExecutive Directors are referred to the Board for approval.

22KNM GROUP BERHAD I Annual Report 2012Corporate Governance Statement (cont’d)The Company’s remuneration scheme is linked to performance, service seniority, experience and scope ofresponsibilities. The Remuneration Committee ascertains and recommends the remuneration packages of theExecutive Directors, including the Executive Director/Chief Executive Officer in accordance with the Company’spolicy guidelines that strongly link remuneration to performance and benchmark the remuneration against that ofthe market surveys conducted by external sources or human resource consultants periodically.Determination of Directors remuneration packages, be it that of the Executive Directors or the Non-Executive Directors,is a matter for the Board as a whole. No Director shall take part in any discussion or decision concerning his or herremuneration. Fees are paid to the Directors subject to the approval of shareholders at the annual general meetings.The Remuneration Committee met twice in 2012, and the attendance of each member at the meeting is set out below:-Number of meetings attended %Datuk Karownakaran @ Karunakaran a/l Ramasamy (Chairman)* 2/2 100Dato’ Dr Khalid bin Ngah # 2/2 100Dato’ Ab Halim bin Mohyiddin 2/2 100Ir Lee Swee Eng 2/2 100Notes:* Subsequent to the financial year ended 31 December 2012, Datuk Karownakaran @ Karunakaran a/l Ramasamy hadresigned as the Company’s Independent Non-Executive Director on 13 February 2013 and Madam Soh Yoke Yan wasappointed as the Independent Non-Executive Director and member of the Remuneration Committee on 14 March 2013.# Re-designated as Chairman of the Remuneration Committee on 14 March 2013.DIRECTORS’ REMUNERATIONThe primary objective of the Group’s remuneration policy is to attract and retain the Directors who perform and leadthe Group. The remuneration of each Director generally reflects the level of responsibility and commitment that goeswith Board membership.For Non-Executive Directors, the level of remuneration is reflective of their experience and level of responsibilities,whereas, the component parts of remuneration package of the Executive Directors are structured to link to corporateand individual performance in line with the Company’s remuneration policy for its Directors.The Remuneration Committee reviews annually the salaries of the Executive Directors and formulates recommendationto the Board for approval. The individuals concerned will abstain from all deliberations and decisions affecting hisor her remuneration and that of the persons deemed connected to him or her.The aggregate remuneration of the Company’s Directors for the financial year ended 31 December 2012 is categorisedinto appropriate components as follows:-Other Benefits-Category of Fee Salary** emoluments in-kind TotalDirectors (RM‘000) (RM‘000) ***(RM‘000) ****(RM‘000) (RM‘000)Executive Directors* 393 3,046 29 38 3,506Non-Executive Directors 497 – 50 – 547Total 890 3,046 79 38 4,053Notes:* During the financial year under review, Mr Ng Boon Su, the then Executive Director resigned on 24 April 2012** The salary is inclusive of statutory employer’s contribution to Employees Provident Fund.*** Other emoluments include bonuses and allowances.**** Other benefits include the provision of hand-phones and company cars.

KNM GROUP BERHAD I Annual Report 201223Corporate Governance Statement (cont’d)The aggregate remuneration of the Company’s Directors as analysed into bands for the financial year ended 31December 2012 are as follows:-Range of No. of No. ofRemuneration Executive Directors Non-Executive Directors TotalRM150,001 to RM200,000 1 2 3RM200,001 to RM250,000 – 1 1RM500,001 to RM550,000 2 – 2RM2,250,001 to RM2,300,000 1 – 1Total 7*Note:* During the financial year under review, Mr Ng Boon Su, the then Executive Director resigned on 24 April 2012DIRECTORS’ TRAININGThe Company realizes and stresses the importance of training and having continuous upgrading of skills, knowledgeand competencies as the strategic advancement and competitive tool not just for the Company but also for personaldevelopment of the respective Directors and the relevant staff concerned. The Company is committed to ensurethat its Directors receive continuous education and further training updates from time to time. The Board shall, on acontinuous basis, evaluate and determine the training needs of its members and subject matters of training that aidthe Directors in the discharge of their duties as Directors.All the current Directors of the Company have attended and completed the Mandatory Accreditation Programme andwill undergo continuous training or education programmes from time to time to equip and keep themselves abreastof the latest developments in order to discharge their duties and responsibilities more effectively. A brief descriptionof the various training or courses attended by the Directors for the financial year under review is as set out below:-DirectorsDato’ Ab Halim binMohyiddinTitle of the training programme/Name of organizerThe New Corporate Governance Blueprint and RegulatoryUpdates Seminar /Malaysian Institute of Corporate GovernanceAmendments of Listing Requirements of Bursa Malaysia NewCorporate Guide and Corporate Governance Blueprint 2011 /Boardroom Smart Business Solutions4 th Petronas BAC Forum 2012 (Board Audit Committee ofPetronas Group of Companies) - Concentration on ConvergenceIFRS & MFRS /Petronas Board Audit Committee with Technical Speakers fromKPMG MalaysiaEffective Dispute Resolution for Corporate Malaysia /The Kuala Lumpur Regional Centre for ArbitrationWorkshop on Long Term Strategic Growth Plan for KNM Groupof Companies /Roland Berger Strategy Consultants (“Roland Berger”)The Malaysian Code on Corporate Governance – The Implicationand Challenges to Public Listed Companies /MICG & FPLCBDisclosure Obligations of Directors and Substantial Shareholders /MAICSAICAA-MICPA Audit Forum – Role of Audit Committee /ICAA-MICPADate10 January 201215 February 20122 – 4 March 201225 April 20124 – 6 May 20123 July 201224 July 201227 September 2012

24KNM GROUP BERHAD I Annual Report 2012Corporate Governance Statement (cont’d)DirectorsIr Lee Swee EngDatuk Karownakaran@ Karunakaran a/lRamasamy*Dato’ Dr Khalid BinNgahGan Siew LiatTitle of the training programme/Name of organizerDirector : An Impossible Task? Impact of RecentDevelopments on The Role of Directors /ICLIFBDO Tax Forum : Time for Action Driving TransformationTowards Developed Nation /BDOMFRS Update 2012/2013 Seminar /KPMGMICPA-Bursa Malaysia Business Forum /MICPA-BursaWorkshop on Long Term Strategic Growth Plan for KNMGroup of Companies /Roland BergerDirectors’ & Management Training on :1) Corporate Governance Practice2) Overview of Malaysian Financial Reporting Standards3) Listing Requirements of Bursa Malaysia Securities Berhad /Integrated Logistics BerhadEconomic Council Working Group Roundtable Consultation- Discussion on Strategy Package for Budget 2013 - StimulatingPrivate Sector Growth /RAM Holdings BerhadHalf Day Governance Programme :“Governance, Risk Management and Compliance : WhatDirectors Should Know” /Bursa Malaysia BerhadMSC Malaysia International Advisory Panel (IAP) 2012 Meeting- Chaired by the Prime Minister /MSC Malaysia & Digital MalaysiaTraining on “Highlights of Key Provisions in the ProposedCompanies Bill 2012” /Chemical Company of Malaysia Berhad / Companies Commissionof Malaysia (COMTRAC)IBC Asia’s 4th Annual Offshore Support Vessels /IBC AsiaWorkshop on Long Term Strategic Growth Plan for KNM Groupof Companies /Roland BergerAAPG 2012 International Conference & Exhibition – Asia PacificResources : Fueling The Future /American Association of Petroleum GeologistsAchieving and Increasing Boardroom Effectiveness andPerformance /MAICSAChew Fook Sin Workshop on Long Term Strategic Growth Plan for KNM Groupof Companies /Roland BergerDate3 October 20128 October 201211 October 201216 October 20124 – 6 May 201225 February 201220 June 20128 August 20129 October 201219 October 201224 – 25 April 20124 – 6 May 201216 -19 September 201211 December 20124 – 6 May 2012* Datuk Karownakaran @ Karunakaran a/l Ramasamy had resigned as Independent Non-Executive Director of the Companyon 13 February 2013

KNM GROUP BERHAD I Annual Report 201225Corporate Governance Statement (cont’d)ACCESS TO INFORMATION AND ADVICEThe Directors, whether individually or as a full Board, have full and direct access to all information of the Companyand advice of the Company Secretaries and independent professionals at the Company’s expense in furtherance oftheir duties, wherever necessary and on a case to case basis depending on the complexities of the matter involved.Currently, the Group’s Company Secretaries effect all proper documentation, to meet all statutory obligations andcompliances as well as to support the Chairman of the Board in ensuring the effective functioning of the Board. TheCompany Secretaries meet the requirements for the discharge of their duties and his/her removal is a matter forthe Board as a whole.ACCOUNTABILITY AND AUDITFinancial ReportingShareholders are provided with fair assessments on the Company’s financial performance and prospects vide timelyissuance of all quarterly reports, annual audited financial statements and announcements on significant developmentsaffecting the Company in compliance with the Listing Requirements and/or the Companies Act 1965 (“the Act”).The Board is assisted by the external auditors, the Company Secretaries and the Audit Committee to scrutinizeinformation for disclosure to ensure its timeliness, accuracy and adequacy.Directors’ Responsibilities for the Financial StatementsPursuant to the Act, the Directors are required to prepare and ensure that financial statements are drawn up inaccordance with the applicable approved accounting standards in Malaysia and the provisions of the Act so as togive a true and fair view of the state of affairs of the Company and the Group for each financial year.The Directors have overall responsibility for taking such steps as are reasonably open to them to safeguard theassets of the Group, and to detect and prevent frauds or other irregularities. The Directors are also responsible forensuring that the Company keeps proper accounting records which disclose, with reasonable accuracy, the financialposition of the Company and the Group and in compliance with the applicable approved accounting standards andthe provisions of the Act.The annual financial statements are audited by external auditors in accordance with the approved standards onauditing in Malaysia. In conducting the audit, the external auditors will obtain reasonable assurance that the financialstatements are free of material misstatements. The external auditors assess the accounting principles used andsignificant estimates made by Directors in addition to evaluate the overall presentation of the financial statements.Internal Controls and Internal Audit FunctionsThe Board has overall responsibility for maintaining a sound system of internal controls to safeguard shareholders’investment and the Group’s assets, which encompasses risk management, financial, organizational, operationaland compliance controls necessary for the Group to achieve its objectives within an acceptable risk profile. Thesecontrols can only provide reasonable but not absolute assurances against material misstatements, errors of judgmentand losses or frauds.Internal Audit function is established by the Board for the Group to review the adequacy of operational controlssystem, and in identifying, evaluating, monitoring and managing risks to provide reasonable assurance that suchsystem will continue to operate satisfactorily and effectively in the Group. The Internal Audit function adds valueand improves the Group’s operations and assist the Audit Committee to effectively discharge its duties by providingindependent and objective assurance.

26KNM GROUP BERHAD I Annual Report 2012Corporate Governance Statement (cont’d)The Internal Audit function reports directly to the Audit Committee and operates in accordance with the framework setout by the Internal Audit Charter as approved by the Audit Committee. It is independently positioned to assist the Boardand Audit Committee in obtaining the assurance they require in relation to the effectiveness of the Group’s systemof internal controls. The Head of Internal Audit regularly reviews and appraises the systems of risk management,internal controls and governance processes within the Company and/or the Group.The Company’s Internal Audit function is competently and adequately resourced to fulfil its purpose and perform itsactivities. It is currently managed and performed in-house and the costs attributable to the discharge of duties andperformance of the Internal Audit function of the Company for the financial year under review is RM481,000 (2011:RM381,000).More details of the system of internal controls of the Company are set out in the Statement on Risk Managementand Internal Control.Relationship with the AuditorsThe Company maintains a transparent and professional relationship with its internal and external auditors at all times.Under its terms of reference, the Audit Committee has explicit authority to communicate directly with the Company’sinternal and external auditors. The Audit Committee reviews the appointment of the Company’s external auditorsand the fees payable to them on an annual basis. Meetings with the senior management, internal and/or externalauditors are held as appropriate to discuss any issues arising from the interim and final audits, audit plans, auditfindings and any other matters of concern that the internal and/or external auditors may wish to discuss. The AuditCommittee meets the external auditors at least twice a year or whenever deemed necessary without any managementor Executive Board members present.The Audit Committee also receives other information such as that of the non-audit services provided by the externalauditors. Based on such information, the Audit Committee has no reason to believe that such engagements haveimpaired or would impair the independence of the external auditors.Further details of the terms of reference and activities of Audit Committee during 2012 are set out in the AuditCommittee Report.SHAREHOLDERSThe Company provides an open channel of communication with its shareholders, institutional investors and theinvesting public at large with the objectives of inter alia, providing timely, clear and complete information of theGroup’s operations, updates, performance and new development based on permissible disclosures. The Companyvalues feedbacks and dialogues with its investors, and believes that a constructive and effective investor relationshipis essential to enhance shareholder value.Communication with shareholders is also maintained by way of immediate announcements made in connection withmaterial developments in the Company’s business and operations in addition to the timely issuance of quarterly andannual reports. Whilst the Company is endeavour to provide as much information as possible to its shareholdersand other stakeholders, it is mindful of the legal and regulatory framework governing the release and disclosure ofmaterial and/or price-sensitive information. Information which is price-sensitive or those which may be regarded asundisclosed material information about the Group will not be disclosed until after the prescribed announcement hasbeen released to Bursa Malaysia Securities Berhad (“Bursa”).Investor RelationsThe Company uses the following key investor relations activities to update its investors:-1) holding briefings, plant visits, conference calls and meetings with the institutional fund managers and financialanalysts;2) participating in roadshows and investors’ conferences, both domestically and internationally; and3) establishing a website at www.knm-group.com for easy access and dissemination of the Group’s corporateinformation, quarterly and annual financial results, announcements to Bursa, news and latest happenings.

KNM GROUP BERHAD I Annual Report 201227Corporate Governance Statement (cont’d)Annual General MeetingShareholder meetings, especially the annual general meetings, represent an important platform and forum fordialogue and interaction between the Company and its shareholders. Such general meetings are normally attendedby all Directors. Explanations are provided during shareholder meetings in relation to proposed resolutions on keycorporate proposals to enable shareholders to make informed decisions. Notice of general meetings provides separateresolutions to be proposed at the general meetings for each distinct issue and any item of special business includedin a notice of general meeting is accompanied by an explanatory note on the effects of the proposed resolution.Questions from and interaction with shareholders are encouraged to further enhance communication betweenshareholders and the Board.The Company’s external auditors and the relevant advisers of the Company will attend such general meetings uponinvitation and be available to answer questions raised where appropriate. The Company accords sufficient time fordiscussion and questions at general meetings, and ensures all questions and issues are properly addressed andexplained thereat. All meetings are recorded by the Company Secretaries in the minutes of the meeting, and copyof which is available for inspection at the Company’s registered office.In addition, a press conference will generally be held immediately after such general meetings whereat, the Directorswould explain and clarify any issues posed by the members of the media regarding the Company, save and exceptfor such information that may be regarded as material or price sensitive in nature, which disclosure shall be madein strict adherence to the disclosure requirements as prescribed under the Listing Requirements and other variouscontractual or statutory rules and provisions that the Group may be subjected to.CORPORATE SOCIAL RESPONSIBILITY (“CSR”) & SUSTAINABILITY INITIATIVESThe Group is committed to observe and alleviate the social well being of the community and carry out their CSR inany manner possible to promote humanitarian works to underprivileged and deserving ones as well as to ensurethe sustainability of the environment, both locally and on the international front.To the Company, CSR starts by integrating business practices that are based on ethical values and respect for thecommunity, environment, shareholders and other stakeholders. The Group CSR framework is designed to deliversustainable value to the society at large, and ensure the interest of the public, including that of the investors in general isadequately protected and the relevant regulatory requirements for which the Company and/or the Group are subjectedto will be duly complied with. The Group continually strives to be a good, caring and responsible corporate citizen.Presently, the Group CSR framework focuses on four main areas, being the environment, the workplace, thecommunity and the marketplace, in no particular order of priority.EnvironmentThe Group manages its operations in a manner which minimises environmental impacts and devotes to all theapplicable environmental regulations in its consumption of resources and generation of waste processes. TheGroup’s Health, Safety and Environment Division establishes, regulates and enforces, among others, the relevantenvironmental policies, rules and regulations for the Group.The Group’s move and diversification into the renewable energy and green technology sectors are based mainly, if notprimarily, on the Group’s dedication to support the reduction of waste and gas emissions into the environment fromits business operations. The Group has embarked into business of renewable technologies for energy, fertilisers andwaste heat recovery systems, carbon dioxide capture and storage, emission control via the following involvements:-1) extraction of biodiesel from palm oil and jatropha, and bioetanol from cassava;2) converting waste to energy, and organic waste to organic fertiliser; and3) engaging in sulphur and mercury removal process systems,as well as such other systems dealing in carbon dioxide capture and storage, emission control and waste heatrecovery systems, etc.Wherever possible, all staff are encouraged to “repair, reduce, reuse and recycle” and adopt energy saving measures,for instance, switching off the lights during breaks and using energy efficient bulbs, wherever possible.

28KNM GROUP BERHAD I Annual Report 2012Corporate Governance Statement (cont’d)WorkplaceThe Group acknowledges and commits to create a safe and conducive working environment for all its employees.The Group’s Health, Safety and Environment Division establishes policies and procedures and reinforces the Group’ssafety culture by inculcating good safety and fire prevention practices, heightening safety awareness and providingsafety gear, conducting safety talks, as well as implementing such other safety courses and training activities so asto attain zero loss time injury hours at its manufacturing facilities.Children of the Company’s staff who have performed well in their primary and secondary school examinations aregiven cash rewards in recognition of their success to bolster their morale and confidence, and to encourage andmotivate them to pursue further studies and excel in a variety of disciplines.As part of the human capital development, the Group conducts various in-house training programmes focusing onquality leadership, building effective performance and job related to equip the employees with improved skills andknowledge.CommunityThe Group’s main sponsorship, outreach and community investment activities include contributions, donations andphilanthropic support towards various deserving and worthy causes. The Group also provides internship trainingprogrammes to local diploma and vocational students for knowledge enrichment as well as complementing andnurturing talents among these students for their personal growth and future employment needs.The Executive Director/Chief Executive Officer, Ir Lee Swee Eng actively contributes and personally participates asa panel member of the University Tunku Abdul Rahman Industry Advisory Panel. He is also the current Presidentof the Malaysian-German Chamber of Commerce and Industry and a Council member of the Institute of MaterialsMalaysia (IMM).In the sporting arena, the Group had participated and/or contributed towards the following events:-a. The Standard Chartered KL Marathon 2012;b. Golfing Tournaments organized by IMM, Malaysian Iron and Steel Industry Federation (MISIF), Malaysian Oil& Gas Services Council (MOGAS), Malaysia Offshore Contractors Association (MOCA) and KBR CharitableFoundation Inc.; andc. Bowling Tournament organized by Maybank.Elsewhere within the Group’s overseas subsidiaries:-a. KNM Canada sponsored Tofield’s Annual Bull-Bash 2012, a bull riding event that drew 32 cowboys from acrossthe world;b. Borsig Germany’s staff participated in the Berlin Company Run 2012; andc. FBM Italy sponsored the restoration of the painting “Madonna col bambino” (Virgin with Child). This paintingwas painted during the 15th Century by the artist Andrea Mantegna (Padova 1430 – Mantova 1506) and isnow displayed in Bergamo Upper Town Museum in Italy.MarketplaceThe Company is committed to ensure that all information released is accurate, concise, timely and in compliancewith the various regulatory requirements that the Group is subjected to.The Company maintains good visibility and constantly interacts with its stakeholders such as investors, portfolioanalysts, fund managers, bankers, government bodies and its corporate clients through a variety of channels, wherebyaccurate and concise information on the Group is provided through briefings, meetings, teleconferences, dialogues andvisits to the Group’s manufacturing facilities to enable its stakeholders to better understand its business operations.Briefings to investors (if any) would be conducted and the presentation updates are posted and can be accessedfrom the Company’s website at www.knm-group.com too. The Group is mindful of the expectations of the investmentcommunity and will always strategize to attain or even surpass their expectations.

KNM GROUP BERHAD I Annual Report 201229Corporate Governance Statement (cont’d)ADDITIONAL COMPLIANCE INFORMATIONThe following additional information is provided in compliance with the Listing Requirements:-1. Approved Utilisation of Proceeds Raised from Corporate Proposal announced to Bursa(i)(ii)On 21 October 2010, KNM had obtained the necessary approval from the Securities Commission for theissuance of up to RM1,500 million (in aggregate nominal value) in Islamic Commercial Papers/IslamicMedium-Term Notes under the Islamic Commercial Papers/Islamic Medium-Term Notes (“ICP/IMTN”)Programme based on the Islamic principle of Musyarakah to be established by KNM. The approvalto extend the proposed implementation of the ICP/IMTN Programme as granted by the SecuritiesCommission until 20 April 2013 has lapsed (the “Approval”). No commercial papers or medium termnotes were issued by the Company pursuant to the said Approval.On 20 November 2012, KNM had completed its Rights Issue exercise involving the issuance of488,920,659 new ordinary shares of RM1.00 each in KNM (“KNM Shares”) (“Rights Shares”) on thebasis of one (1) Rights Share for every two (2) existing KNM Shares held together with up to 488,920,659free detachable warrants (“Warrants”) on the basis of one (1) Warrant for every one (1) Rights Sharesubscribed for. The proceeds raised and the utilisation thereof are as set out below:-PurposeUtilisationRM’000Repayment of bank borrowings 154,764Defray expenses relating to the exercise 7,201Working capital 33,604Total 195,5692. Share Buy-BacksThe Company had purchased 20,000 of its own shares during the financial year ended 31 December 2012,all of which were held as treasury shares and maintained by the Company. Details are as follows:-TotalLowest Highest considerationNo. of price paid price paid Average paid (includingshares Par value for each for each price per transactionbought per share share share share costs)Month back (RM) (RM) (RM) (RM) (RM)January – – – – – –February 10,000 1.00 0.95 0.95 0.957 9,569.85March – – – – – –April – – – – – –May – – – – – –June – – – – – –July – – – – – –August – – – – – –September – – – – – –October – – – – – –November 10,000 1.00 0.48 0.48 0.485 4,846.44December – – – – – –Total 20,000 0.721 14,416.29

30KNM GROUP BERHAD I Annual Report 2012Corporate Governance Statement (cont’d)3. Related Party TransactionsAll related party transactions for 2012 are set out in Note 27 to the Financial Statements.An internal compliance framework exists to ensure the Company meets its obligations, including that of relatedparty transactions under the Listing Requirements. The Audit Committee will review all related party transactionsand report the same to the Board.A Director who has interest in a transaction abstains from deliberation and voting on the relevant resolutionin respect of such transaction at the Board meeting and at any general meeting convened to consider suchtransaction.4. Options, Warrants or Convertible SecuritiesDuring the financial year, 488,920,659 warrants 2012/2017 were issued by the Company on 16 November2012 which carries the rights to subscribe for new shares in the Company at an exercise price RM1.00 pershare and expiring on 15 November 2017. No warrants were exercised during the financial year. (Please referto Analysis of Shareholdings and Warrantholdings of the Annual Report for more details).5. American Depository Receipt (“ADR”) or Global Depository Receipt (“GDR”) programmeThe Company did not sponsor any ADR or GDR programme during the financial year under review.6. Imposition of Sanctions and/or PenaltiesThere were no sanctions and/or penalties imposed on the Company and its subsidiaries, Directors ormanagement by any relevant regulatory bodies during the financial year ended 31 December 2012.7. Non-Audit FeesThe amount of non-audit fees paid or payable to the external auditors and its affiliates in connection withservices rendered to the Group and/or the Company for the financial year ended 31 December 2012 are asfollows:-Due/Payment to Purpose Amount (RM)Messrs KPMGProfessional fees rendered for review of Statementon Internal Control and other engagements 54,400Affiliates of KPMGProfessional fees rendered for taxation, financial andin Malaysia tax due diligence 432,320Affiliates of KPMGProfessional fees rendered for taxation, financial andin overseas tax due diligence 829,663Total : 1,316,3838. Variation in ResultsThere is a deviation of more than 10% between the announced unaudited financial results and audited financialstatements of the Group’s profit after tax and minority interests for the financial year ended 31 December 2012.The significant adjustments are mainly attributed to the impairment in goodwill, deferred tax asset, property,plant & equipment and contingency cost provision of the Company’s Brazil operations. Details of the samehave been fully disclosed and announced on 30 April 2013.

KNM GROUP BERHAD I Annual Report 201231Corporate Governance Statement (cont’d)9. Profit GuaranteeNo profit guarantees were given by the Company for the financial year under review.10. Material ContractsThere were no material contracts entered into by the Company and/or its subsidiaries involving Directors and/or major shareholders’ interests either still subsisting at the end of the financial year ended 31 December 2012or which were entered into since the end of the previous financial year.11. Contracts Related to LoansThere were no contracts relating to a loan by the Company and its subsidiaries in respect of the preceding item,save and except for the acceptance of interest free loans advanced from Inter Merger Sdn Bhd, a substantialshareholder to the Company, which is RM33.218 million outstanding as at financial year ended 31 December2012.The advancement of the short term interest free loans are for the Company’s working capital purposes andpayable on demand.

32KNM GROUP BERHAD I Annual Report 2012Audit Committee ReportThe Audit Committee of the Company is pleased to present the Audit Committee Report for the financial year ended31 December 2012.MEMBERS, MEETINGS HELD AND ATTENDANCE OF MEMBERSThe members of the Audit Committee are totally Independent Non-Executive Directors and they comprise three(3) in numbers. The attendance of each member at the five (5) meetings held during the financial year ended 31December 2012 are as follows:-Name of member Designation Directorship of the member AttendanceDato’ Ab Halim bin Mohyiddin* Chairman Independent Non-Executive 5/5Chairman (100%)Datuk Karownakaran @ Karunakaran Member Independent Non-Executive 5/5a/l Ramasamy # Director (100%)Dato’ Dr Khalid Bin Ngah* Member Senior Independent 5/5Non-Executive Director (100%)Notes:* Dato’ Ab Halim bin Mohyiddin has been re-designated as Chairman of the Company in place of Ir Lee Swee Eng who hasrelinquished his position as Chairman on 29 April 2013. Dato’ Dr Khalid bin Ngah was re-designated as Senior IndependentNon-Executive Director on 29 April 2013.# Subsequent to the financial year ended 31 December 2012, Datuk Karownakaran @ Karunakaran a/l Ramasamy hadresigned as the Company’s Independent Non-Executive Director on 13 February 2013 and Madam Soh Yoke Yan wasappointed as the Independent Non-Executive Director and member of the Audit Committee on 14 March 2013.TERMS OF REFERENCE(I)ObjectivesThe objectives of the Audit Committee (“Committee”) are to:-1. provide assistance to the Board of Directors (“Board”) in fulfilling the Board’s fiduciary responsibilitieson financial, accounting, management controls, financial reporting and business ethics practices of theCompany, and to ensure that such practices conform to the highest possible standards of corporategovernance; and2. provide greater emphasis on the audit functions by serving as the focal point for communication betweenother Directors, the external auditors, internal auditors and the management in all matters relating tofinancial accounting, reporting and controls and providing a forum for discussion that is independentof the management. It is the Board’s principal agent in ensuring the independence of the Company’sexternal auditors, the objectivity of the Company’s internal auditors, the integrity of management andmanagement policies and the adequacy of disclosures to shareholders.(II)FunctionsWithout limiting the generality of this written terms of reference, the Company must ensure the Committeeshall, amongst others, discharge the following functions:-1. Review the following and report the same to the Board of the Company:-(a)(b)with the external auditor, the audit plan;with the external auditor, his evaluation of the system of internal controls;

KNM GROUP BERHAD I Annual Report 201233Audit Committee Report (cont’d)(c)(d)(e)(f)(g)with the external auditor, his audit report;the assistance given by employees of the Company to the external auditor;the adequacy of the scope, functions, competency and resources of the internal audit functionsand that it has the necessary authority to carry out his work;the internal audit program, processes, the results of the internal audit program, processes orinvestigation undertaken and whether or not appropriate action is taken on the recommendationsof the internal audit function;the quarterly results and year end financial statements, prior to the approval by the Board, focusingparticularly on:-(i)(ii)(iii)changes in or implementation of major accounting policy changes;significant and unusual events; andcompliance with accounting standards and other legal requirements;(h)(i)(j)(k)any related party transaction and conflict of interest situation that may arise within the Companyor Group including any transaction, procedure or course of conduct that raises questions ofmanagement integrity;any letter of resignation from the external auditors of the Company;whether there is reason (supported by grounds) to believe that the Company’s external auditor isnot suitable for re-appointment; andany allocation of options during the year under the Company’s Employee Share Option Scheme(“ESOS”) to ensure compliance in accordance with the By-laws of the Company’s ESOS.2. Recommend the nomination of a person or persons as external auditors.3. Carry out such other responsibilities, functions or assignments as may be assigned by the Board.4. Where the Committee is of the view that a matter reported by it to the Board of the Company has not beensatisfactorily resolved resulting in a breach of the Bursa Malaysia Securities Berhad (“Bursa Securities”)Main Market Listing Requirements, the Committee must promptly report such matter to Bursa Securities.(III)Audit Committee Report1. The Company must ensure that its Board prepares an Audit Committee Report at the end of each financialyear that complies with (2) and (3) below.2. The Audit Committee Report must be clearly set out in the Annual Report of the Company.3. The Audit Committee Report shall include the following:-(a)(b)(c)(d)(e)the composition of the Committee, including the name, designation (indicating the Chairman) andthe directorship of the members (indicating whether the Directors are independent or otherwise);the terms of reference of the Committee;the number of Committee meetings held during the financial year and details of attendance ofeach Committee member;a summary of the activities of the Committee in the discharge of its functions and duties for thatfinancial year of the Company; anda summary of the activities of the internal audit function or activity.

34KNM GROUP BERHAD I Annual Report 2012Audit Committee Report (cont’d)(IV)RightsThe Company must ensure that wherever necessary and reasonable for the performance of its duties, theCommittee shall, in accordance with a procedure to be determined by the Board and at the cost of the Company:-(a)(b)(c)(d)(e)(f)have authority to investigate any matter within its terms of reference;have the resources which are required to perform its duties;have full and unrestricted access to any information pertaining to the Company;have direct communication channels with the internal auditors and person(s) carrying out the internalaudit function or activity;be able to obtain independent professional or other advice; andbe able to convene meetings with the external auditors, the internal auditors or both, excluding theattendance of other Directors and management or employees of the Company, whenever deemednecessary.(V)Internal Audit1. The Company must establish an internal audit function which is independent of the activities it audits.2. The Company must ensure its internal audit function reports directly to the Committee.(VI)VariationThe above Terms of Reference may be determined and/or varied by the Company’s Board of Directors at anytime and from time to time.ACTIVITIES DURING THE YEARDuring the financial year under review, the Committee had:-1. reviewed with the external auditors the audit plan, results of the audit, audit reports and recommendations;2. reviewed and adopted the internal audit plan for 2013, including its scope and areas of audit;3. reviewed and deliberated on activities of audits conducted by the Internal Audit Department for the year underreview;4. reviewed financial statements including quarterly financial announcements to the Bursa Securities and yearend financial statements and recommended the same for approval by the Board, upon being satisfied that,inter alia, the financial reporting and disclosure requirements of the relevant authorities had been compliedwith, including deliberation of any significant issues resulting from the audit of the financial statements by theexternal auditors;5. reviewed recurrent related party transactions that were entered into by the Group;6. reviewed significant accounting policies that were affected by the introduction of the new Malaysian AccountingStandards and Financial Reporting Standards; and7. reviewed with the external auditors on audit strategy and scope for the statutory audit of the Company’s financialstatements for the financial year ended 31 December 2012.

KNM GROUP BERHAD I Annual Report 201235Audit Committee Report (cont’d)INTERNAL AUDIT FUNCTIONSThe Group has an in-house Internal Audit Department which operates across the Group and independent of theactivities or operations of the subsidiaries and departments. The duties of the Internal Audit Department are to providereasonable assurance in the effective execution of responsibilities of Committee members by providing verifications,examinations and evaluations of the Group’s system of internal controls.The Head of the Internal Audit Department reports directly to the Committee highlighting major weaknesses incontrol procedures of auditable areas as set out in the internal audit plan. Where appropriate, relevant correctiveand/or preventive actions will also be recommended for implementation in order to further strengthen the existingsystem of internal controls of the Group. During the year, among others, Internal Audit Department had carried outthe following activities:-• reviewed and ascertained adequacy of internal controls through operational and compliance audits;• reported audit findings of highlighted weaknesses with recommendations to the Audit Committee on a quarterlybasis; and• performed follow-up review for corrective and/or preventive actions of the weaknesses.The costs amounting to approximately RM481,000 (2011: RM381,000) were incurred for the internal audit functionsin respect of the financial year ended 31 December 2012.

36KNM GROUP BERHAD I Annual Report 2012Statement on Risk Management and Internal ControlThe Board of Directors is committed to maintaining a sound system of internal controls in the Group and is pleasedto provide the following statement on risk management and internal control that outlines the nature and scope ofrisk management and internal control of the Group during the year as required under Paragraph 15.26(b) of theBursa Malaysia Securities Berhad Main Market Listing Requirements. The Board is ultimately responsible for theGroup’s system of internal controls and reviewing its effectiveness. The Board also believes that the Group’s systemof internal controls and risk management practices are vital to good corporate governance.RISK MANAGEMENTThe Group has developed a risk management framework and has put in place an Enterprise-Wide Risk Managementframework to identify the key risks faced by the Group, the potential impact and likelihood of those risks occurring,the control effectiveness and the action plans being taken to manage those risks to the desired level. Such a systemis designed to identify, evaluate and manage the significant risks faced by the Group in its achievement to achieveits objectives and strategies. A process has been put in place for the year under review and up to the date of thisstatement. On-going reviews are and will continuously be carried out to ensure the effectiveness, adequacy andintegrity of the system of internal controls in safeguarding the Group’s assets and shareholders’ investment in theGroup. Where necessary actions have been taken to remedy any significant failings or weaknesses identified from theperiod reviewed. However, actions taken can provide only a reasonable and not an absolute assurance against risk.INTERNAL CONTROLThe key elements of certain operating activities of the Group’s system of internal controls are as follows:-• An organisational structure specifying lines of responsibility and delegation of authority.• The Financial Authority Limits delineate authorization limits for securing of jobs and services, purchases ofgoods and/or services and capital expenditure for each level of management to ensure proper identificationof accountability and segregation of duties.• Management executive committee meetings involving the Executive Directors, senior management and projectspersonnel were conducted to discuss the state of affairs and progress for projects and operational businesses.• The Quality Assurance departments conducted internal quality audits to monitor compliance with ISOrequirements at respective subsidiaries with ISO accreditation.• The Health, Safety and Environment departments at the fabrication facilities carried out health, safety andenvironment activities to promote staff safety awareness and compliance.• The Board and Audit Committee reviewed the operational and financial performance at quarterly Board andAudit Committee meetings.The Head of the Group Internal Audit Department reports audit matters directly to the Audit Committee of the Groupto preserve the independence of the internal audit function. The internal audit work is focused on areas of priority inaccordance with the audit plan as approved by the Audit Committee.ASSOCIATED COMPANIES AND JOINTLY-CONTROLLED ENTITIESThe Group’s system of internal controls does not cover associated and jointly-controlled entities.MONITORINGThe system of internal controls will continue to be reviewed, added to or updated by the Board in line with the changesin operating environment.The Board has received assurance from the CEO and CFO that the Group’s risk management and internal controlsystem is operating adequately and effectively, in all material aspects, based on the risk management and internalcontrol system of the Group.The Board is pleased to report that there were no material losses or contingencies requiring disclosure in the Group’sAnnual Report 2012 under review as a result from weaknesses in internal control.

Financial Statements38 Directors’ Report43 Statements of Financial Position45 Statements of Comprehensive Income47 Statement of Changes in Equity50 Statements of Cash Flows53 Notes to the Financial Statements135 Statement by Directors135 Statutory Declaration136 Independent Auditors’ Report

38KNM GROUP BERHAD I Annual Report 2012Directors’ reportfor the year ended 31 December 2012The Directors hereby submit their report and the audited financial statements of the Group and of the Company forthe year ended 31 December 2012.Principal activitiesThe Company is principally engaged in investment holding and provision of management services, whilst the principalactivities of the subsidiaries are as stated in Note 31 to the financial statements. There has been no significant changein the nature of these activities during the financial year.ResultsGroupRM’000CompanyRM’000Profit for the year attributable to:Owners of the Company 82,026 37,007Non-controlling interests (1,938) –80,088 37,007Reserves and provisionsThere were no material transfers to or from reserves and provisions during the financial year except as disclosedin the financial statements.DividendsNo dividend was paid during the financial year and the Directors do not recommend any dividend to be paid for thefinancial year under review.Directors of the CompanyDirectors who served since the date of the last report are:Lee Swee EngDato’ Ab. Halim bin MohyiddinDato’ Dr Khalid bin NgahGan Siew LiatChew Fook SinSoh Yoke Yan (Appointed on 14.3.2013)Datuk Karownakaran @ Karunakaran A/L Ramasamy (Resigned on 13.2.2013)

KNM GROUP BERHAD I Annual Report 2012Directors’ Reportfor the year ended 31 December 2012 (cont’d)39Directors’ interestsThe interests and deemed interests in the shares and warrants of the Company and of its related corporations (otherthan wholly-owned subsidiaries) of those who were Directors at year end (including the interest of the spouses orchildren of the Directors who themselves are not Directors of the Company) as recorded in the Register of Directors’Shareholdings are as follows:Shareholdings in which Directorshave direct interests in the CompanyNumber of ordinary shares of RM1.00 eachAtAt1.1.2012 Bought Sold 31.12.2012Lee Swee Eng 12,426,186 9,643,455 – 22,069,641Dato’ Ab. Halim bin Mohyiddin 1,362,500 681,250 – 2,043,750Gan Siew Liat 4,197,500 2,098,750 – 6,296,250Chew Fook Sin 3,057,300 1,528,650 – 4,585,950Shareholdings in which Directorshave indirect interests in the CompanyLee Swee Eng 228,877,560 124,400,619 (2,000,000) 351,278,179Gan Siew Liat 228,877,560 124,400,619 (2,000,000) 351,278,179Chew Fook Sin 17,960,727 8,980,363 (2,000,000) 24,941,090Shareholdings in which a Directorhas direct interest in a subsidiary- KPS Technology & Engineering LLCLee Swee Eng 100,000 – – 100,000Warrantholdings in which Directorshave direct interests in the CompanyNumber of warrants over the ordinary sharesof RM1.00 eachAtAt1.1.2012 Bought Sold 31.12.2012Lee Swee Eng – 9,643,455 – 9,643,455Dato’ Ab. Halim bin Mohyiddin – 681,250 – 681,250Gan Siew Liat – 2,098,750 – 2,098,750Chew Fook Sin – 1,528,650 – 1,528,650Warrantholdings in which Directorshave indirect interests in the CompanyLee Swee Eng – 124,400,619 (3,000,000) 121,400,619Gan Siew Liat – 124,400,619 (3,000,000) 121,400,619Chew Fook Sin – 8,980,363 (3,000,000) 5,980,363By virtue of their interests in the Company, Lee Swee Eng, Gan Siew Liat and Chew Fook Sin are also deemed tohave interests in the subsidiaries during the financial year to the extent that KNM Group Berhad has an interest.None of the other Directors holding office at 31 December 2012 had any interest in the ordinary shares and warrantsof the Company and of its related corporations during the financial year.

40KNM GROUP BERHAD I Annual Report 2012Directors’ Reportfor the year ended 31 December 2012 (cont’d)Directors’ benefitsSince the end of the previous financial year, no Director of the Company has received nor become entitled to receiveany benefit (other than a benefit included in the aggregate amount of emoluments received or due and receivableby certain Directors as shown in the financial statements or the fixed salaries of full time employees of the Companyor of related corporation) by reason of a contract made by the Company or a related corporation with the Director orwith a firm of which the Director is a member, or with a corporation in which the Director has a substantial financialinterest, other than as disclosed in Note 27 to the financial statements.There were no arrangements during and at the end of the financial year which had the object of enabling Directorsof the Company to acquire benefits by means of the acquisition of shares in or debentures of the Company or anyother body corporate.Issue of shares and debenturesDuring the financial year, the Company:a) increased its authorised share capital from RM1,250,000,000 comprising 1,250,000,000 ordinary shares ofRM1.00 each to RM2,250,000,000 by the creation of an additional 1,000,000,000 new ordinary shares ofRM1.00 each.b) issued 488,920,659 new ordinary shares of RM1.00 each via a renounceable two-call rights issue for a totalconsideration of RM488,920,659 where the first call of RM0.40 is payable in cash on application and thesecond call of RM0.60 is to be capitalised from the Company’s Share Premium account (“2012 Rights IssueExercise”).The ordinary shares issued rank pari passu in all respect with the existing shares of the Company.There were no other changes in the authorised, issued and paid-up capital of the Company during the financial year.There were no debentures issued during the financial year.Options granted over unissued sharesNo options were granted to any person to take up unissued shares of the Company during the year apart from theissuance of warrants during the financial year.In November 2012, the Company issued 488,920,659 free warrants on the basis of one (1) free Warrant for everyone (1) Rights share subscribed for in the 2012 Rights Issue Exercise. The Warrants are constituted by a Deed Polldated 4 October 2012 and were listed on Bursa Malaysia Securities Berhad on 20 November 2012.The main features of the Warrants are as follows:a) Each warrants will entitle its registered holder during the exercise period to subscribe for one (1) new ordinaryshare at the exercise price, which has been fixed at RM1.00 per share subject to adjustments in accordancewith the provisions of the Deed Poll dated 4 October 2012 constituting the warrants.b) The warrants may be exercised at any time on or after 16 November 2012 until the end of the tenure of theWarrants. The tenure of the warrants is for a period of five (5) years. Warrants not exercised during the exerciseperiod shall thereafter lapse and cease to be valid for any purpose.

KNM GROUP BERHAD I Annual Report 2012Directors’ Reportfor the year ended 31 December 2012 (cont’d)41Share buy-backOn 26 June 2012, the shareholders of the Company renewed the Company’s plan to repurchase its own sharesas disclosed in Note 15 to the financial statements. During the financial year, the Company repurchased 20,000 ofits issued ordinary shares of RM1.00 each listed on the Main Market of Bursa Malaysia Securities Berhad from theopen market at an average price of approximately RM0.72 per share. The total consideration paid was RM14,416including transaction costs of RM116. The repurchase transactions were financed by internally generated funds.The shares repurchased are retained as treasury shares. None of the treasury shares held were resold or cancelledduring the financial year.As at 31 December 2012, the Company held 23,261,275 ordinary shares of RM1.00 each as treasury shares outof its total issued and paid-up share capital. Hence, the number of outstanding shares in issue and paid-up afterdeducting treasury shares as at 31 December 2012 is 1,466,751,977 ordinary shares of RM1.00 each. The treasuryshares have no rights to voting, dividends or participation in other distribution.Other statutory informationBefore the financial statements of the Group and of the Company were made out, the Directors took reasonablesteps to ascertain that:(i)(ii)all known bad debts have been written off and adequate provision made for doubtful debts, andany current assets which were unlikely to be realised in the ordinary course of business have been writtendown to an amount which they might be expected so to realise.At the date of this report, the Directors are not aware of any circumstances:(i)(ii)(iii)(iv)that would render the amount written off for bad debts, or the amount of the provision for doubtful debts in theGroup and in the Company inadequate to any substantial extent, orthat would render the value attributed to the current assets in the financial statements of the Group and of theCompany misleading, orwhich have arisen which render adherence to the existing method of valuation of assets or liabilities of theGroup and of the Company misleading or inappropriate, ornot otherwise dealt with in this report or the financial statements, that would render any amount stated in thefinancial statements of the Group and of the Company misleading.At the date of this report, there does not exist:(i)(ii)any charge on the assets of the Group or of the Company that has arisen since the end of the financial yearand which secures the liabilities of any other person, orany contingent liability in respect of the Group or of the Company that has arisen since the end of the financialyear.No contingent liability or other liability of any company in the Group has become enforceable, or is likely to becomeenforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors,will or may substantially affect the ability of the Group and of the Company to meet their obligations as and whenthey fall due.In the opinion of the Directors, except for write downs and impairment made to the goodwill, deferred tax assets andproperty, plant and equipment of Brazil units, provision for foreseeable losses and doubtful debts in the Group, thefinancial performance of the Group and of the Company for the financial year ended 31 December 2012 have notbeen substantially affected by any item, transaction or event of a material and unusual nature nor has any such item,transaction or event occurred in the interval between the end of that financial year and the date of this report.

42KNM GROUP BERHAD I Annual Report 2012Directors’ Reportfor the year ended 31 December 2012 (cont’d)Significant events during the yearThe significant events during the year are as disclosed in Note 34 to the financial statements.Subsequent eventsThe significant subsequent events are as disclosed in Note 35 to the financial statements.AuditorsThe auditors, Messrs KPMG, have indicated their willingness to accept re-appointment.Signed on behalf of the Board of Directors in accordance with a resolution of the Directors:…………………………………………………………Dato’ Ab. Halim bin Mohyiddin…………………………………………………………Lee Swee EngKuala Lumpur,Date: 30 April 2013

KNM GROUP BERHAD I Annual Report 2012Statements of Financial Positionas at 31 December 201243GroupCompanyNote 31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011RM’000 RM’000 RM’000 RM’000 RM’000 RM’000AssetsProperty, plant andequipment 3 866,346 761,814 765,712 – – –Goodwill 4 743,975 787,883 788,350 – – –Other intangible assets 4 559,670 594,641 620,858 – – –Interests in subsidiaries 5 – – – 1,661,423 1,611,333 1,131,333Investments in associates 6 41 45 455 – – –Investments in jointlycontrolledentities 7 7,394 5,882 316 40 40 –Other investments 8 14,183 14,088 3,620 – – –Deferred tax assets 9 364,634 279,922 195,946 8 119 –Amount due from a subsidiary 10 – – – 301,140 351,330 351,330Total non-current assets 2,556,243 2,444,275 2,375,257 1,962,611 1,962,822 1,482,663Inventories 11 76,811 72,120 69,063 – – –Current tax assets 38,148 30,969 55,224 – – –Trade and other receivables 12 982,470 953,858 718,406 350,495 16,838 184,514Derivative financial assets 13 8,682 20,584 16,331 – – –Cash and cash equivalents 14 191,801 416,429 296,237 17,830 622 3,777Total current assets 1,297,912 1,493,960 1,155,261 368,325 17,460 188,291Total assets 3,854,155 3,938,235 3,530,518 2,330,936 1,980,282 1,670,954EquityShare capital 1,445,033 1,001,093 1,001,093 1,445,033 1,001,093 1,001,093Share premium 16,707 319,426 319,426 16,707 319,426 319,426Treasury shares (53,385) (53,371) (44,588) (53,385) (53,371) (44,588)Reserves 424,354 342,477 447,080 95,092 13,104 39,319Total equity attributableto owners of the Company 15 1,832,709 1,609,625 1,723,011 1,503,447 1,280,252 1,315,250Non-controlling interests 4,237 7,021 12,328 – – –Total equity 1,836,946 1,616,646 1,735,339 1,503,447 1,280,252 1,315,250

44KNM GROUP BERHAD I Annual Report 2012Statements of Financial Positionas at 31 December 2012 (cont’d)GroupCompanyNote 31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011RM’000 RM’000 RM’000 RM’000 RM’000 RM’000LiabilitiesLoans and borrowings 16 104,838 366,390 380,493 – 250,950 250,950Long term payables 17 21,418 20,702 25,552 483,941 – –Long service leave liability 2,841 2,366 1,911 – – –Deferred tax liabilities 9 229,288 239,838 267,724 – – –Total non-current liabilities 358,385 629,296 675,680 483,941 250,950 250,950Loans and borrowings 16 831,597 777,894 664,641 301,140 100,380 100,380Current tax liabilities 6,283 6,075 7,938 583 199 721Deferred income 18 237,762 390,160 57,346 – – –Trade and other payables 19 576,811 496,810 379,934 41,794 348,026 3,653Derivative financial liabilities 13 6,371 21,354 9,640 31 475 –Total current liabilities 1,658,824 1,692,293 1,119,499 343,548 449,080 104,754Total liabilities 2,017,209 2,321,589 1,795,179 827,489 700,030 355,704Total equity and liabilities 3,854,155 3,938,235 3,530,518 2,330,936 1,980,282 1,670,954The notes on pages 53 to 133 are an integral part of these financial statements.

KNM GROUP BERHAD I Annual Report 2012Statements of Comprehensive Incomefor the year ended 31 December 201245GroupCompanyNote 2012 2011 2012 2011RM’000 RM’000 RM’000 RM’000RevenueContract revenue 2,377,340 1,963,778 – –Sales of goods and services 190 – – –Management fees – – 7,894 4,589Dividend income – – 34,000 -2,377,530 1,963,778 41,894 4,589Cost of salesContract costs recognised as an expense (1,969,972) (1,776,612) – –Cost of goods sold and services (176) – – –(1,970,148) (1,776,612) – –Gross profit 407,382 187,166 41,894 4,589Administration expenses (224,342) (216,001) (4,784) (5,092)Other income 39,860 27,460 559 1,232Other operating expenses (115,559) (105,469) (1,095) (474)Results from operating activities 107,341 (106,844) 36,574 255Finance costs 20 (60,362) (52,190) (21,176) (19,494)Finance income 3,758 3,632 23,218 22,897Impairment of goodwill (29,557) – – –Share of loss of equity accountedinvestees, net of tax (144) (480) – –Profit/(Loss) before tax 21,036 (155,882) 38,616 3,658Tax expense 21 59,052 62,100 (1,609) (530)Profit /(Loss) for the year 22 80,088 (93,782) 37,007 3,128Other comprehensive (expense)/income, net of taxCash flow hedge 5,228 (3,659) – –Foreign currency translationdifferences for foreign operations (5,513) 9,174 – –Impairment of previously revaluedproperty, plant and equipment – (4,353) – –Hedge of net investment in subsidiary (45,423) 13,232 – –Share of other comprehensive incomeof equity accounted investees (239) 157 – –Fair value of available-for-salefinancial assets (30) – – –Other comprehensive (expense)/income for the year, net of tax (45,977) 14,551 – –Total comprehensive income/(expense) for the year 34,111 (79,231) 37,007 3,128

46KNM GROUP BERHAD I Annual Report 2012Statements of Comprehensive Incomefor the year ended 31 December 2012 (cont’d)GroupCompanyNote 2012 2011 2012 2011RM’000 RM’000 RM’000 RM’000Profit/(Loss) attributable to:Owners of the Company 82,026 (91,766) 37,007 3,128Non-controlling interests (1,938) (2,016) – –Profit/(Loss) for the year 80,088 (93,782) 37,007 3,128Total comprehensive income/(expense) attributable to:Owners of the Company 36,896 (75,260) 37,007 3,128Non-controlling interests (2,785) (3,971) – –Total comprehensive income/(expense) for the year 34,111 (79,231) 37,007 3,128Basic/Diluted earnings/(loss) perordinary share (sen) 23 7.90 (9.38)The notes on pages 53 to 133 are an integral part of these financial statements.

KNM GROUP BERHAD I Annual Report 2012Statements of Changes in Equityfor the year ended 31 December 201247Attributable to owners of the CompanyNon-distributable DistributableNon-Share Share Treasury Revaluation Translation Hedging Fair value Warrant Retained controlling TotalNote capital premium shares reserve reserve Reserve Reserve reserve earnings Total Interest equityGroup RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000At 1 January 2011 1,001,093 319,426 (44,588) 44,584 (531,419) (1,513) 30 – 935,398 1,723,011 12,328 1,735,339Foreign currency translationdifferences for foreignoperations – – – – 11,129 – – – – 11,129 (1,955) 9,174Hedge of net investment – – – – 13,232 – – – – 13,232 – 13,232Cash flow hedge – – – – – (3,659) – – – (3,659) – (3,659)Impairment of previouslyrevalued property, plant andequipments – – – (4,353) – – – – – (4,353) – (4,353)Share of other comprehensiveincome of equity accountedinvestees – – – – 157 – – – – 157 – 157Other comprehensive incomefor the year – – – (4,353) 24,518 (3,659) – – – 16,506 (1,955) 14,551Loss for the year – – – – – – – – (91,766) (91,766) (2,016) (93,782)Total comprehensive incomefor the year – – – (4,353) 24,518 (3,659) – – (91,766) (75,260) (3,971) (79,231)Increase in share capital insubsidiaries – – – – – – – – – – (1,336) (1,336)Share buy-back – – (8,783) – – – – – – (8,783) – (8,783)Dividend to owners of theCompany – – – – – – – – (29,343) (29,343) – (29,343)Total distribution to ownersof the Company – – (8,783) – – – – – (29,343) (38,126) (1,336) (39,462)At 31 December 2011 1,001,093 319,426 (53,371) 40,231 (506,901) (5,172) 30 – 814,289 1,609,625 7,021 1,616,646Note 15.1 Note 15.2 Note 15.3 Note 15.4 Note 15.5 Note 15.6 Note 15.7

48KNM GROUP BERHAD I Annual Report 2012Statements of Changes in Equityfor the year ended 31 December 2012 (cont’d)Attributable to owners of the CompanyNon-distributable DistributableNon-Share Share Treasury Revaluation Translation Hedging Fair value Warrant Retained controlling TotalNote capital premium shares reserve reserve Reserve Reserve reserve earnings Total Interest equityGroup RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000At 1 January 2012 1,001,093 319,426 (53,371) 40,231 (506,901) (5,172) 30 – 814,289 1,609,625 7,021 1,616,646Foreign currency translationdifferences for foreignoperations – – – – (4,666) – – – – (4,666) (847) (5,513)Hedge of net investment – – – – (45,423) – – – – (45,423) – (45,423)Fair value of available-for-salefinancial assets – – – – – – (30) – – (30) – (30)Cash flow hedge – – – – – 5,228 – – – 5,228 – 5,228Share of other comprehensiveincome of equity accountedinvestees – – – – (239) – – – – (239) – (239)Other comprehensive incomefor the year – – – – (50,328) 5,228 (30) – – (45,130) (847) (45,977)Profit for the year – – – – – – – – 82,026 82,026 (1,938) 80,088Total comprehensive incomefor the year – – – – (50,328) 5,228 (30) – 82,026 36,896 (2,785) 34,111- Issue of ordinary shares pursuantto Rights Issue 488,921 (293,352) – – – – – – – 195,569 – 195,569- Allocation of warrants reserve (44,981) – – – – – – 44,981 – – – –- Share issue expenses – (9,367) – – – – – – – (9,367) – (9,367)- Acquisition of equity interest insubsidiary – – – – – – – – – – 1 1- Share buy-back – – (14) – – – – – – (14) – (14)Total transactions with ownersof the Company 443,940 (302,719) (14) – – – – 44,981 – 186,188 1 186,189At 31 December 2012 1,445,033 16,707 (53,385) 40,231 (557,229) 56 – 44,981 896,315 1,832,709 4,237 1,836,946Note 15.1 Note 15.2 Note 15.3 Note 15.4 Note 15.5 Note 15.6 Note 15.7The notes on pages 53 to 133 are an integral part of these financial statements.

KNM GROUP BERHAD I Annual Report 2012Statements of Changes in Equityfor the year ended 31 December 2012 (cont’d)49Attributable to owners of the CompanyNon-distributableDistributableShare Share Treasury Warrant RetainedNote capital premium shares reserve earnings TotalCompany RM’000 RM’000 RM’000 RM’000 RM’000 RM’000At 1 January 2011 1,001,093 319,426 (44,588) – 39,319 1,315,250Profit for the year/Total comprehensiveincome for the year – – – – 3,128 3,128Share buy-back – – (8,783) – – (8,783)Dividends to owners ofthe Company – – – – (29,343) (29,343)Total transactions withowners of the Company – – (8,783) – (29,343) (38,126)At 31 December 2011/1January 2012 1,001,093 319,426 (53,371) – 13,104 1,280,252Profit for the year/Total comprehensiveincome for the year – – – – 37,007 37,007- Issue of ordinary sharespursuant to Rights Issue 488,921 (293,352) – – – 195,569- Allocation of fair valueof warrants (44,981) – – 44,981 – –- Share issue expenses – (9,367) – – – (9,367)- Share buy-back – – (14) – – (14)Total transactions with ownersof the Company 443,940 (302,719) (14) 44,981 – 186,188At 31 December 2012 1,445,033 16,707 (53,385) 44,981 50,111 1,503,447Note 15.1 Note 15.2 Note 15.7 Note 15.8The notes on pages 53 to 133 are an integral part of these financial statements.

50KNM GROUP BERHAD I Annual Report 2012Statements of Cash Flowsfor the year ended 31 December 2012GroupCompanyNote 2012 2011 2012 2011RM’000 RM’000 RM’000 RM’000Cash flows fromoperating activitiesProfit/(Loss) before tax 21,036 (155,882) 38,616 3,658Adjustments for:Amortisation ofintangible assets 32,743 33,401 – –Depreciation of property,plant and equipment 11,595 10,649 – –Dividend Income – – (34,000) –Loss/(Gain) on disposal ofproperty, plant andequipment 1,101 (70) – –(Gain)/Loss onforeign exchange- unrealised (5,130) 5,791 – –Interest expenses 55,463 49,008 19,491 19,493Interest income (3,758) (3,632) (23,218) (22,897)Impairment loss on goodwill 29,557 2,794 – –Provision for foreseeable losses 13,565 50,376 – –Share of loss ofequity-accounted investees,net of tax 144 480 – –Change in fair value offorward contract 3,336 3,802 (444) 475Impairment of other investments 1,389 – – –Impairment of property,plant and equipment 4,500 – – –Impairment loss of investmentin subsidiaries – – 100 –Impairment loss of amount duefrom subsidiaries – – 284 –Operating profit/(loss) beforechanges in working capital 165,541 (3,283) 829 729Changes in working capital:Inventories (4,691) (3,057) – –Trade and other receivables 13,814 (233,687) 1,733 (2,727)Trade and other payables (72,421) 442,148 37,518 186Cash generated from/(used in) operations 102,243 202,121 40,080 (1,812)Tax paid (48,678) (21,784) (1,114) (1,171)Interest paid (3,438) (2,540) – –Interest received 3,758 3,632 23,218 22,897Net cash generated fromoperating activities 53,885 181,429 62,184 19,914

KNM GROUP BERHAD I Annual Report 2012Statements of Cash Flowsfor the year ended 31 December 2012 (cont’d)51GroupCompanyNote 2012 2011 2012 2011RM’000 RM’000 RM’000 RM’000Cash flows frominvesting activitiesAcquisition of otherintangible assets (8,012) (3,892) – –Acquisition of property, plantand equipment (ii) (49,167) (48,755) – –Acquisition of subsidiaries,net of cash acquired 32 (128,952) (940) – –(Repayment to)/Advances fromsubsidiary companies – – (161,483) 34,590Investment in jointly-controlledentity (2,100) (5,287) – (40)Investment in associatescompanies – (43) – –Investment in RedeemableConvertible PreferenceShares – (10,000) – –Proceeds from disposal ofproperty, plant and equipment 312 2,601 – –Proceeds from issuance of shareto non-controlling interests 1 – – –Net cash (used in)/generatedfrom investing activities (187,918) (66,316) (161,483) 34,550Cash flows from financing activitiesDividend paid to shareholdersof the Company – (29,343) – (29,343)Finance charges/Interest paid (52,025) (46,468) (19,491) (19,493)Proceeds from issuance of shares 195,569 - 195,569 –Repayment of CP/MTN (95,000) (75,000) – –Net proceeds from bills payable 13,283 133,281 – –Net repayment of finance leaseliabilities (8,573) (10,115) – –Net (repayment)/proceeds ofterm loans and revolving credit (123,676) 29,783 (50,190) –Share buy-back (14) (8,783) (14) (8,783)Share issue expenses (9,367) – (9,367) –Net cash (used in)/generatedfrom financing activities (79,803) (6,645) 116,507 (57,619)Net (decrease)/increase in cashand cash equivalents (213,836) 108,468 17,208 (3,155)Cash and cash equivalentsat 1 January 399,167 290,699 622 3,777Cash and cash equivalents at31 December (i) 185,331 399,167 17,830 622

52KNM GROUP BERHAD I Annual Report 2012Statements of Cash Flowsfor the year ended 31 December 2012 (cont’d)Notes to statements of cash flows:(i)Cash and cash equivalentsCash and cash equivalents included in the statement of cash flows comprise the following statement of financialposition amounts:GroupCompanyNote 2012 2011 2012 2011RM’000 RM’000 RM’000 RM’000Cash and bank balances 14 182,913 341,381 17,830 622Deposits with licensed banksand financial institutions 14 8,888 75,048 – –Bank overdrafts 16 (6,470) (17,262) – –185,331 399,167 17,830 622(ii)Acquisition of property, plant and equipmentDuring the financial year, the Group acquired property, plant and equipment with an aggregate cost ofRM66,076,000 (2011: RM58,232,000), of which RM16,909,000 (2011: RM9,477,000) was acquired by meansof hire purchase.(iii)Non cash transactionsOperating activitiesDuring the financial year, the Company recognised dividend income of RM34,000,000. The dividend incomereceived was net off against the amount due to a subsidiary.Investing activitiesDuring the financial year, the Company increased its investment in its subsidiaries by RM50,190,000 (2011:RM480,000,000) of which RM50,190,000 (2011: RM480,000,000) was through capitalisation of debts.Financing activitiesDuring the financial year, the Company issued 488,920,659 new ordinary shares of RM1.00 each viarenounceable two-call rights issue for a total consideration of RM488,920,659, of which RM293,352,000 wascapitalised from share premium account.The notes on pages 53 to 133 are an integral part of these financial statements.

KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements53KNM Group Berhad is a public limited liability company, incorporated and domiciled in Malaysia and is listed onthe Main Market of the Bursa Malaysia Securities Berhad. The addresses of the principal place of business andregistered office are as follows:Registered office and principal place of business15, Jalan Dagang SB 4/1Taman Sungai Besi Indah43300 Seri KembanganSelangor Darul EhsanThe consolidated financial statements of the Company as at and for the year ended 31 December 2012 comprisethe Company and its subsidiaries (together referred to as the “Group” and individually referred to as “Group entities”)and the Group’s interest in associates and jointly-controlled entities. The financial statements of the Company as atand for the year ended 31 December 2012 do not include other entities.The Company is principally engaged in investment holding activities and provision of management services, whilstthe principal activities of the subsidiaries are as stated in Note 31 to the financial statements.These financial statements were authorised for issue by the Board of Directors on 30 April 2013.1. Basis of preparation(a)Statement of complianceThe financial statements of the Group and the Company have been prepared in accordance withMalaysian Financial Reporting Standards (“MFRS”), International Financial Reporting Standards andthe requirements of the Companies Act, 1965 in Malaysia. These are the Group and the Company’s firstfinancial statements prepared in accordance with MFRS and MFRS 1, First-time Adoption of MalaysianFinancial Reporting Standards has been applied.In the previous financial years, the financial statements of the Group and the Company were preparedin accordance with Financial Reporting Standards (“FRS”). The financial impacts on transition to MFRSare disclosed in Note 36.The following are accounting standards, amendments and interpretations of the MFRS framework thathave been issued by the Malaysian Accounting Standards Board (“MASB”) but have not been adoptedby the Group and the Company:MFRS, Interpretations and amendments effective for annual periods beginning on or after 1 July2012• Amendments to MFRS 101, Presentation of Items of Other Comprehensive Income (Amendmentsto MFRS 101)MFRS, Interpretations and amendments effective for annual periods beginning on or after 1January 2013• MFRS 10, Consolidated Financial Statements• MFRS 11, Joint Arrangements• MFRS 12, Disclosure of Interests in Other Entities• MFRS 13, Fair Value Measurement• MFRS 119, Employee Benefits (2011)• MFRS 127, Separate Financial Statements (2011)• MFRS 128, Investments in Associates and Joint Ventures (2011)• IC Interpretation 20, Stripping Costs in the Production Phase of a Surface Mine• Amendments to MFRS 7, Financial Instruments: Disclosures – Offsetting Financial Assets andFinancial Liabilities• Amendments to MFRS 1, First-time Adoption of Malaysian Financial Reporting Standards –Government Loans• Amendments to MFRS 1, First-time Adoption of Malaysian Financial Reporting Standards (AnnualImprovements 2009-2011 Cycle)

54KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)1. Basis of preparation (Cont’d)(a)Statement of compliance (cont’d)MFRS, Interpretations and amendments effective for annual periods beginning on or after 1January 2013 (cont’d)• Amendments to MFRS 101, Presentation of Financial Statements (Annual Improvements 2009-2011 Cycle)• Amendments to MFRS 116, Property, Plant and Equipment (Annual Improvements 2009-2011Cycle)• Amendments to MFRS 132, Financial Instruments: Presentation (Annual Improvements 2009-2011Cycle)• Amendments to MFRS 134, Interim Financial Reporting (Annual Improvements 2009-2011 Cycle)• Amendments to MFRS 10, Consolidated Financial Statements: Transition Guidance• Amendments to MFRS 11, Joint Arrangements: Transition Guidance• Amendments to MFRS 12, Disclosure of Interests in Other Entities: Transition GuidanceMFRS, Interpretations and amendments effective for annual periods beginning on or after 1January 2014• Amendments to MFRS 10, Consolidated Financial Statements: Investment Entities• Amendments to MFRS 12, Disclosure of Interests in Other Entities: Investment Entities• Amendments to MFRS 127, Separate Financial Statements (2011): Investment Entities• Amendments to MFRS 132, Financial Instruments: Presentation – Offsetting Financial Assets andFinancial LiabilitiesMFRS, Interpretations and amendments effective for annual periods beginning on or after 1January 2015• MFRS 9, Financial Instruments (2009)• MFRS 9, Financial Instruments (2010)• Amendments to MFRS 7, Financial Instruments: Disclosures – Mandatory Effective Date of MFRS9 and Transition DisclosuresThe Group and the Company plan to apply the abovementioned standards, amendments andinterpretations:• from the annual period beginning on 1 January 2013 for those standards, amendments orinterpretations that are effective for annual periods beginning on or after 1 July 2012 and 1 January2013, except for IC Interpretation 20 and Amendments to MFRS 1 which are not applicable to theGroup and the Company.• from the annual period beginning on 1 January 2014 for those standards, amendments orinterpretations that are effective for annual periods beginning on or after 1 January 2014.• from the annual period beginning on 1 January 2015 for those standards, amendments orinterpretations that are effective for annual periods beginning on or after 1 January 2015.Material impacts of initial application of a standard, an amendment or an interpretation are discussedbelow:MFRS 9, Financial InstrumentsMFRS 9 replaces the guidance in MFRS 139, Financial Instruments: Recognition and Measurement onthe classification and measurement of financial assets. Upon adoption of MFRS 9, financial assets willbe measured at either fair value or amortised cost.The adoption of MFRS 9 will result in a change in accounting policy. The Group is currently assessingthe financial impact of adopting MFRS 9.

KNM GROUP BERHAD I Annual Report 201255Notes to the Financial Statements (cont’d)1. Basis of preparation (Cont’d)(a)Statement of compliance (cont’d)MFRS 10, Consolidated Financial StatementsMFRS 10, Consolidated Financial Statements introduces a new single control model to determiningwhich investees should be consolidated. MFRS 10 supersedes MFRS 127, Consolidated and SeparateFinancial Statements and IC Interpretation 112, Consolidation – Special Purpose Entities. There are threeelements to the definition of control in MFRS 10: (i) power by investor over an investee, (ii) exposure,or rights, to variable returns from investor’s involvement with the investee, and (iii) investor’s ability toaffect those returns through its power over the investee.The Group is currently assessing the relevance and financial impact of adopting MFRS 10.MFRS 11, Joint ArrangementsMFRS 11, Joint Arrangements establishes the principles for classification and accounting for jointarrangements and supersedes MFRS 131, Interests in Joint Ventures. Under MFRS 11, a jointarrangement may be classified as joint venture or joint operation. Interest in joint venture will be accountedfor using the equity method whilst interest in joint operation will be accounted for using the applicableMFRS relating to the underlying assets, liabilities, income and expense items arising from the jointoperations.The Group is currently assessing the relevance and financial impact of adopting MFRS 11.MFRS 13, Fair Value MeasurementMFRS 13, Fair Value Measurement establishes the principles for fair value measurement and replacesthe existing guidance in different MFRS.The Group is currently assessing the relevance and financial impact of adopting MFRS 13.The initial application of other standards, amendments and interpretations is not expected to have anymaterial financial impacts to the current and prior periods financial statements upon their first adoption.(b)Basis of measurementThe financial statements of the Group and of the Company have been prepared on the historical costbasis except as disclosed in the notes to the financial statements and on the assumption that the Groupand the Company are going concerns.i) As of that date, the current liabilities of the Group exceeded its current assets by RM360,912,000ii)As disclosed in Note 16 to the financial statements, the Company and certain subsidiaries fellshort of certain prescribed financial covenant ratios as required by the lending institutions.The above mentioned financial covenants are computed based on the audited financial statementsfor the year ended 31 December 2012. Subsequent to year end, the Company and certainsubsidiaries had sought and received the written indulgences from the affected lending institutions.The Directors recognise the liquidity exposure of the Group and of the Company and is currentlyengaging the various financial institutions to restructure and refinance the Group’s and theCompany’s existing loans and borrowings. The Directors are of the view that the Group and theCompany will succeed in the restructuring and refinancing exercise. In addition, the Directors areof the view that the Group and the Company will continue to achieve future profitable operationsand the continued support from shareholders and creditors.For these reasons, the Group and the Company continue to adopt the going concern basis ofaccounting in preparing the financial statements.Accordingly, the financial statements of the Group and the Company do not include any adjustmentsrelating to the recoverability of recorded assets amount, additional amount of liabilities andclassification of assets and liabilities from non-current to current should the going concern basisof preparation of financial statements be inappropriate.

56KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)1. Basis of preparation (Cont’d)(c)Functional and presentation currencyThese financial statements are presented in Ringgit Malaysia (RM), which is the Company’s functionalcurrency. All financial information is presented in RM and has been rounded to the nearest thousand,unless otherwise stated.(d)Use of estimates and judgementsThe preparation of financial statements in conformity with MFRS requires management to makejudgements, estimates and assumptions that affect the application of accounting policies and the reportedamounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accountingestimates are recognised in the period in which the estimate is revised and in any future periods affected.There are no significant areas of estimation uncertainty and critical judgements in applying accountingpolicies that have significant effect on the amount recognised in the financial statements other than thosedisclosed in the following notes:• Note 3 - Revaluation of property and depreciation of plant and machinery• Note 4 - Measurement of the recoverable amounts of the cash-generating units• Note 9 - Recognition of unutilised tax losses and unabsorbed capital allowances• Note 12 - Impairment of trade and other receivables• Note 12.1 - Construction work-in-progress• Note 15.7 - Warrant reserve2. Significant accounting policiesThe accounting policies set out below have been applied consistently to the periods presented in thesefinancial statements, and in preparing the opening MFRS statements of financial position of the Group and ofthe Company at 1 January 2011 (the transition date to MFRS framework), other than the accounting policy onwarrant reserves, Note 2(k)(v) which is applied in the current financial year.(a)Basis of consolidation(i)SubsidiariesSubsidiaries are entities, including unincorporated entities, controlled by the Company. The financialstatements of subsidiaries are included in the consolidated financial statements from the date thatcontrol commences until the date that control ceases. Control exists when the Company has thepower to govern the financial and operating policies of an entity so as to obtain benefits from itsactivities. In assessing control, potential voting rights that presently are exercisable are taken intoaccount.Investments in subsidiaries are measured in the Company’s statement of financial position at costless any impairment losses, unless the investment is classified as held for sale or distribution. Thecost of investment includes transaction cost.(ii)Business combinationsBusiness combinations are accounted for using the acquisition method from the acquisition date,which is the date on which control is transferred to the Group.

KNM GROUP BERHAD I Annual Report 201257Notes to the Financial Statements (cont’d)2. Significant accounting policies (Cont’d)(a)Basis of consolidation (cont’d)(ii)Business combinations (cont’d)Acquisitions on or after 6 June 2008For acquisitions on or after 6 June 2008, the Group measures the cost of goodwill at the acquisitiondate as:• the fair value of the consideration transferred; plus• the recognised amount of any non-controlling interest in the acquiree; plus• if the business combination is achieved in stages, the fair value of the existing equity interestin the acquiree; less• the net recognised amount (generally fair value) of the identifiable assets acquired andliabilities assumed.When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.For each business combination, the Group elects whether it measures the non-controlling interestsin the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable netassets at the acquisition date.Transaction costs, other than those associated with the issue of debt or equity securities, that theGroup incurs in connection with a business combination are expensed as incurred.Acquisitions before 6 June 2008As part of its transition to MFRS, the Group has applied the transition exemption and elected toapply MFRS 3 retrospectively to past business combination since 6 June 2008. Goodwill arisingfrom acquisition after 6 June 2008 have been restated. Arising from the adoption of MFRS 3, theacquisition related cost for the business combination are expensed as incurred.(iii)Acquisitions of non-controlling interestsThe Group treats all changes in ownership interest in a subsidiary that do not result in a lossof control as equity transactions between the Group and its non-controlling interest holders.Any difference between the Group’s share of net assets before and after the changes, and anyconsideration received or paid, is adjusted to or against Group reserves.(iv)Loss of controlUpon the loss of control of a subsidiary, the Group derecognises the assets and liabilities ofthe subsidiary, any non-controlling interests and the other components of equity related to thesubsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If theGroup retains any interest in the previous subsidiary, then such interest is measured at fair valueat the date that control is lost. Subsequently it is accounted for as an equity accounted investeeor as an available-for-sale financial asset depending on the level of influence retained.(v)AssociatesAssociates are entities, including unincorporated entities, in which the Group has significantinfluence, but not control, over the financial and operating policies.Investment in associates are accounted for in the consolidated financial statements using theequity method less any impairment losses, unless it is classified as held for sale or distribution. Thecost of the investment includes transaction costs. The consolidated financial statements includethe Group’s share of the profit or loss and other comprehensive income of the equity accountedassociates, after adjustments, if any, to align the accounting policies with those of the Group, fromthe date that significant influence commences until the date that significant influence ceases.

58KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)2. Significant accounting policies (Cont’d)(a)Basis of consolidation (cont’d)(v)Associates (cont’d)When the Group’s share of losses exceeds its interest in an equity accounted associate, thecarrying amount of that interest including any long-term investments is reduced to zero and therecognition of further losses is discontinued except to the extent that the Group has an obligationor has made payments on behalf of the associate.When the Group ceases to have significant influence over an associate, it is accounted for as adisposal of the entire interest in that associate, with a resulting gain or loss being recognised inprofit or loss. Any retained interest in the former associate at the date when significant influenceis lost is re-measured at fair value and this amount is regarded as the initial carrying amount of afinancial asset.When the Group’s interest in an associate decreases but does not result in a loss of significantinfluence, any retained interest is not re-measured. Any gain or loss arising from the decreasein interest is recognised in profit or loss. Any gains or losses previously recognised in othercomprehensive income are also reclassified proportionately to the profit or loss.Investments in associates are measured in the Company’s statement of financial position at costless any impairment losses, unless the investment is classified as held for sale or distribution. Thecost of investments includes transaction costs.(vi)Jointly-controlled entitiesA jointly-controlled entities are those entities over whose activities the Group has joint control,established by contractual agreement and requiring unanimous consent for strategic financial andoperating decisions.Jointly controlled entities are accounted for in the consolidated financial statements using theequity method less any impairment losses, unless it is classified as held for sale or distribution (orincluded in a disposal group that is classified as held for sale or distribution). The consolidatedfinancial statements include the Group’s share of the profit or loss and other comprehensive incomeof the equity-accounted joint ventures, after adjustments, if any, to align the accounting policieswith those of the Group, from the date that joint control commences until the date that joint controlceases.When the Group’s share of losses exceeds its interest in an equity- accounted joint venture, thecarrying amount of that interest (including any long-term investments) is reduced to zero and therecognition of further losses is discontinued except to the extent that the Group has an obligationor has made payments on behalf of the joint venture.Investments in joint ventures are stated in the Company’s statement of financial position at costless impairment losses, unless the investment is classified as held for sale or distribution.(vii) Non-controlling interestsNon-controlling interests at the end of the reporting period, being the equity in a subsidiarynot attributable directly or indirectly to the equity holders of the Company, are presented in theconsolidated statement of financial position and statement of changes in equity within equity,separately from equity attributable to the owners of the Company. Non -controlling interests in theresults of the Group is presented in the consolidated statement of comprehensive income as anallocation of the profit or loss and the comprehensive income for the year between non -controllinginterests and the owners of the Company.Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controllinginterests even if doing so causes the non -controlling interests to have a deficit balance.

KNM GROUP BERHAD I Annual Report 201259Notes to the Financial Statements (cont’d)2. Significant accounting policies (Cont’d)(a)Basis of consolidation (cont’d)(viii) Transactions eliminated on consolidationIntra-group balances and transactions, and any unrealised income and expenses arising fromintra-group transactions, are eliminated in preparing the consolidated financial statements.Unrealised gains arising from transactions with associates are eliminated against the investmentto the extent of the Group’s interest in the associates. Unrealised losses are eliminated in thesame way as unrealised gains, but only to the extent that there is no evidence of impairment.(b)Foreign currency(i)Foreign currency transactionsTransactions in foreign currencies are translated to the respective functional currencies of Groupentities at exchange rates at the date of the transaction.Monetary assets and liabilities denominated in foreign currencies at the end of the reporting periodare retranslated to the respective functional currencies of Group entities at the exchange rate atthat date.Non-monetary assets and liabilities denominated in foreign currencies are not retranslated at theend of the reporting date except for those that are measured at fair value are retranslated to thefunctional currency at the exchange rate at the date that the fair value was determined.Foreign currency differences arising on retranslation are recognised in profit or loss, except fordifferences arising on the retranslation of available-for-sale equity instruments or a financialinstrument designated as a hedge of currency risk, which are recognised in other comprehensiveincome.(ii)Operations denominated in functional currencies other than Ringgit Malaysia (RM)The assets and liabilities of operations in functional currencies other than RM, including goodwilland fair value adjustments arising on acquisition, are translated to RM at exchange rates at theend of the reporting period. The income and expenses of foreign operations are translated to RMat exchange rates at the dates of the transactions.Foreign currency differences are recognised in other comprehensive income and accumulatedin the foreign currency translation reserve (“FCTR”) in equity. However, if the operation is a nonwholly-ownedsubsidiary, then the relevant proportionate share of the translation difference isallocated to the non-controlling interests. When a foreign operation is disposed of such control,significant influence or joint control is lost, the cumulative amount in the FCTR related to thatforeign operation is reclassified to profit or loss as part of the profit or loss on disposal.When the Group disposes of only part of its interest in a subsidiary that includes a foreign operationwhile retaining control, the relevant proportion of the cumulative amount is reattributed to noncontrollinginterests. When the Group disposes of only part of its investment in an associate orjoint venture that includes a foreign operation while retaining significant influence or joint control,the relevant proportion of the cumulative amount is reclassified to profit or loss.In the consolidated financial statements, when settlement of a monetary item receivable fromor payable to a foreign operation is neither planned nor likely in the foreseeable future, foreignexchange gains and losses arising from such a monetary item are considered to form part of anet investment in a foreign operation and are recognised in other comprehensive income, and arepresented in the FCTR within equity.

60KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)2. Significant accounting policies (Cont’d)(c)Financial instruments(i)Initial recognition and measurementA financial assets or a financial liability is recognised in the statement of financial position when,and only when, the Group or the Company becomes a party to the contractual provisions of theinstrument.A financial instrument is recognised initially, at its fair value plus, in the case of a financial instrumentnot at fair value through profit or loss, transaction costs that are directly attributable to the acquisitionor issue of the financial instrument.An embedded derivative is recognised separately from the host contract and accounted for asa derivative if, and only if, it is not closely related to the economic characteristics and risks ofthe host contract and the host contract is not categorised at fair value through profit or loss. Thehost contract, in the event an embedded derivative is recognised separately, is accounted for inaccordance with policy applicable to the nature of the host contract.(ii)Financial instrument categories and subsequent measurementThe Group and the Company categorise financial instruments as follows:Financial assets(a)Financial assets at fair value through profit or lossFair value through profit or loss category comprises financial assets that are held for trading,including derivatives (except for a derivative that is a designated and effective hedginginstrument) or financial assets that are specifically designated into this category upon initialrecognition.Derivatives that are linked to and must be settled by delivery of unquoted equity instrumentswhose fair values cannot be reliably measured are measured at cost.Other financial assets categorised as fair value through profit or loss are subsequentlymeasured at their fair values with the gain or loss recognised in profit or loss.(b)Loans and receivablesLoans and receivables category comprises debt instruments that are not quoted in an activemarket, trade and other receivables and cash and cash equivalents.Financial assets categorised as loans and receivables are subsequently measured atamortised cost using the effective interest method.(c)Available-for-sale financial assetsAvailable-for-sale category comprises investment in equity and debt securities instrumentsthat are not held for trading.Investments in equity instruments that do not have a quoted market price in an active marketand whose fair value cannot be reliably measured are measured at cost.

KNM GROUP BERHAD I Annual Report 201261Notes to the Financial Statements (cont’d)2. Significant accounting policies (Cont’d)(c)Financial instruments (cont’d)(ii)Financial instrument categories and subsequent measurement (cont’d)(c)Available-for-sale financial assets (cont’d)Other financial assets categorised as available-for-sale are subsequently measured attheir fair values with the gain or loss recognised in other comprehensive income, exceptfor impairment losses, foreign exchange gains and losses arising from monetary items andgains and losses of hedged items attributable to hedge risks of fair value hedges which arerecognised in profit or loss. On derecognition, the cumulative gain or loss recognised in othercomprehensive income is reclassified from equity into profit or loss. Interest calculated fora debt instrument using the effective interest method is recognised in profit or loss.All financial assets, except for those measured at fair value through profit or loss, are subject toreview for impairment (See note 2(j)(i)).Financial liabilitiesAll financial liabilities are subsequently measured at amortised cost other than those categorisedas fair value through profit or loss.Fair value through profit or loss category comprises financial liabilities that are derivatives (except fora derivative that is a financial guarantee contract or a designated and effective hedging instrument)or financial liabilities that are specifically designated into this category upon initial recognition.Derivatives that are linked to and must be settled by delivery of unquoted equity instruments whosefair values cannot be reliably measured are measured at cost.Other financial liabilities categorised as fair value through profit or loss are subsequently measuredat their fair values with the gain or loss recognised in profit or loss.(iii)Financial guarantee contractsA financial guarantee contract is a contract that requires the issuer to make specified payments toreimburse the holder for a loss it incurs because a specified debtor fails to make payment whendue in accordance with the original or modified terms of a debt instrument.Financial guarantee contracts are classified as “deferred income” and are amortised to profit or lossusing a straight-line method over the contractual period or, when there is no specified contractualperiod, recognised in profit or loss upon discharge of the guarantee. When settlement of a financialguarantee contract becomes probable, an estimate of the obligation is made. If the carrying valueof the financial guarantee contract is lower than the obligation, the carrying value is adjusted tothe obligation amount and accounted for as a provision.(iv)Regular way purchase or sale of financial assetsA regular way purchase or sale is a purchase or sale of a financial asset under a contract whoseterms require delivery of the asset within the time frame established generally by regulation orconvention in the marketplace concerned.A regular way purchase or sale of financial assets is recognised and derecognised, as applicable,using trade date accounting. Trade date accounting refers to:(a)(b)the recognition of an asset to be received and the liability to pay for it on the trade date, andderecognition of an asset that is sold, recognition of any gain or loss on disposal and therecognition of a receivable from the buyer for payment on the trade date.

62KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)2. Significant accounting policies (Cont’d)(c)Financial instruments (cont’d)(v)Hedge accountingCash flow hedgeA cash flow hedge is a hedge of the exposure to variability in cash flows that is attributableto a particular risk associated with a recognised asset or liability or a highly probable forecasttransaction and could affect the profit or loss. In a cash flow hedge, the portion of the gain orloss on the hedging instrument that is determined to be an effective hedge is recognised in othercomprehensive income and the ineffective portion is recognised in profit or loss.Subsequently, the cumulative gain or loss recognised in other comprehensive income is reclassifiedfrom equity into profit or loss in the same period or periods during which the hedged forecast cashflows affect profit or loss. If the hedge item is a non-financial asset or liability, the associated gain orloss recognised in other comprehensive income is removed from equity and included in the initialamount of the asset or liability. However, loss recognised in other comprehensive income that willnot be recovered in one or more future periods is reclassified from equity into profit or loss.Cash flow hedge accounting is discontinued prospectively when the hedging instrument expiresor is sold, terminated or exercised, the hedge is no longer highly effective, the forecast transactionis no longer expected to occur or the hedge designation is revoked. If the hedge is for a forecasttransaction, the cumulative gain or loss on the hedging instrument remains in other comprehensiveincome until the forecast transaction occurs. When the forecast transaction is no longer expectedto occur, any related cumulative gain or loss recognised in other comprehensive income on thehedging instrument is reclassified from equity into profit or loss.(vi)DerecognitionA financial asset or part of it is derecognised when, and only when the contractual rights to thecash flows from the financial asset expire or the financial asset is transferred to another partywithout retaining control or substantially all risks and rewards of the asset. On derecognition ofa financial asset, the difference between the carrying amount and the sum of the considerationreceived (including any new asset obtained less any new liability assumed) and any cumulativegain or loss that had been recognised in equity is recognised in the profit or loss.A financial liability or a part of it is derecognised when, and only when, the obligation specifiedin the contract is discharged or cancelled or expires. On derecognition of a financial liability, thedifference between the carrying amount of the financial liability extinguished or transferred toanother party and the consideration paid, including any non-cash assets transferred or liabilitiesassumed, is recognised in the profit or loss.(d)Property, plant and equipment(i)Recognition and measurementFreehold lands and capital work-in-progress are stated at cost/valuation less any accumulatedimpairment losses. All other items of property, plant and equipment are stated at cost/valuationless accumulated depreciation and any accumulated impairment losses.The Group revalues its freehold lands and buildings every 5 years and at shorter intervals wheneverthe fair value of the revalued assets is expected to differ materially from their carrying value.Additions subsequent to their revaluation are stated in the financial statements at cost until thenext revaluation exercise.

KNM GROUP BERHAD I Annual Report 201263Notes to the Financial Statements (cont’d)2. Significant accounting policies (Cont’d)(d)Property, plant and equipment (cont’d)(i)Recognition and measurement (cont’d)Freehold lands and buildings are stated at Directors’ valuation based on professional valuationson the open market basis conducted in December 2009. The next valuation is expected to be in2014.Surpluses arising from revaluation are recognised in other comprehensive income and accumulatedin the revaluation reserve account. Any deficit arising is offset against the revaluation reserve tothe extent of a previous increase for the same property. In all other cases, a decrease in carryingamount is charged into the profit or loss.Cost includes expenditures that are directly attributable to the acquisition of the asset, any othercosts directly attributable to bringing the asset to working condition for its intended use, and thecosts of dismantling and removing the items and restoring the site on which they are located.The cost of self-constructed assets includes the cost of materials and direct labour. For qualifyingassets, borrowing costs are capitalised in accordance with the accounting policy on borrowingcosts.Purchased software that is integral to the functionality of the related equipment is capitalised aspart of that equipment.The cost of property, plant and equipment recognised as a result of a business combination isbased on fair value at acquisition date. The fair value of property is the estimated amount for whicha property could be exchanged on the date of valuation between knowledgeable willing parties in anarm’s length transaction after proper marketing wherein the parties had each acted knowledgeably,prudently and without compulsion. The fair value of other items of plant and equipment is based onthe quoted market prices for similar items when available and replacement costs when appropriate.When significant parts of an item of property, plant and equipment have different useful lives, theyare accounted for as separate items (major components) of property, plant and equipment.The gain or loss on disposal of an item of property, plant and equipment is determined by comparingthe proceeds from disposal with the carrying amount of property, plant and equipment and arerecognised net within “other income” or “other operating expenses” respectively in profit or loss.When revalued assets are sold, the amounts included in the revaluation surplus reserve aretransferred to retained earnings.(ii)Subsequent costsThe cost of replacing a component of an item of property, plant and equipment is recognised inthe carrying amount of the item if it is probable that the future economic benefits embodied withinthe component will flow to the Group or the Company, and its cost can be measured reliably. Thecarrying amount of the replaced component is derecognised to profit or loss. The costs of theday-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.(iii)DepreciationDepreciation is based on the cost of an asset less its residual value. Significant componentsof individual assets are assessed, and if a component has a useful life that is different from theremainder of that asset, then that component is depreciated separately.Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives ofeach component of an item of property, plant and equipment. Leased assets are depreciated overthe shorter of the lease term and their useful lives unless it is reasonably certain that the Groupwill obtain ownership by the end of the lease term. Freehold lands is not depreciated. Property,plant and equipment under construction (capital work-in-progress) are not depreciated until theassets are ready for their intended use.

64KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)2. Significant accounting policies (Cont’d)(d)Property, plant and equipment (cont’d)(iii)Depreciation (cont’d)The estimated useful lives for the current and comparative periods are as follows:Leasehold landsBuildingsBuilding improvementsPlant and machineriesMotor vehiclesFurniture, fittings and equipment45 - 66 years20 - 60 years5 - 15 years4 - 20 years3 - 10 years2.5 - 10 yearsDepreciation methods, useful lives and residual values are reviewed at the end of the reportingperiod, and adjusted where appropriate.(e)Leased assets(i)Finance leaseLeases in terms of which the Group or the Company assumes substantially all the risks andrewards of ownership are classified as finance leases. Upon initial recognition, the leased asset ismeasured at an amount equal to the lower of its fair value and the present value of the minimumlease payments. Subsequent to initial recognition, the asset is accounted for in accordance withthe accounting policy applicable to that asset.Minimum lease payments made under finance leases are apportioned between the finance expenseand the reduction of the outstanding liability. The finance expense is allocated to each period duringthe lease term so as to produce a constant periodic rate of interest on the remaining balance of theliability. Contingent lease payments are accounted for by revising the minimum lease paymentsover the remaining term of the lease when the lease adjustment is confirmed.Leasehold lands which in substance is a finance lease is classified as property, plant and equipment.(ii)Operating leaseLeases, where the Group or the Company does not assume substantially all the risks and rewardsof the ownership are classified as operating leases and, except for property interest held underoperating lease, the leased assets are not recognised on the statement of financial position.Payments made under operating leases are recognised in profit or loss on straight-line basis overthe term of the lease. Lease incentives received are recognised in profit or loss as an integral partof the total lease expense, over the term of the lease. Contingent rentals are charged to profit orloss in the reporting period in which they are incurred.Leasehold lands which in substance is an operating lease is classified as prepaid lease payments.(f)Intangible assets(i)GoodwillGoodwill arises on business combinations and is measured at cost less any accumulated impairmentlosses. In respect of equity accounted associates, the carrying amount of goodwill is included in thecarrying amount of the investment and an impairment loss on such an investment is not allocatedto any asset, including goodwill, that forms part of the carrying amount of the equity accountedassociates.

KNM GROUP BERHAD I Annual Report 201265Notes to the Financial Statements (cont’d)2. Significant accounting policies (Cont’d)(f)Intangible assets (cont’d)(ii)Other intangible assetsIntangible assets, other than goodwill, that are acquired by the Group, which have finite useful lives,are stated at cost less any accumulated amortisation and any accumulated impairment losses.The fair value of technology and marketing related intangible assets acquired in a businesscombination is based on the discounted estimated royalty payments that have been avoided as aresult of the intangible assets being owned. The fair value of customer related intangible assetsacquired in a business combination is determined using the multi-period excess earnings method,whereby the subject assets is valued after deducting a fair return on all other assets that are partof creating the related cash flows.The fair value of other intangible assets is based on the discounted cash flows expected to bederived from the use and eventual sale of the assets.(iii)Subsequent expenditureSubsequent expenditure is capitalised only when it increases the future economic benefits embodiedin the specific asset to which it relates. All other expenditure, including expenditure on internallygenerated goodwill and brands, is recognised in profit or loss as incurred.(iv)AmortisationGoodwill and intangible assets with indefinite useful lives are tested for impairment annually andwhenever there is an indication that they may be impaired.Other intangible assets are amortised from the date that they are available for use.Amortisation of intangible assets is recognised in profit or loss on a straight-line basis over theestimated useful lives of intangible assets from the date that they are available for use.The estimated useful lives for the current and comparative periods are as follows:• Technology related intangible asset 5 - 15 years• Customer and marketing related intangible asset 1 - 20 yearsAmortisation methods, useful lives and residual values are reviewed at the end of each reportingperiod and adjusted, if appropriate.(g)InventoriesInventories are measured at the lower of cost and net realisable value.The cost of raw materials, tools and consumables is determined on a first-in first-out principle and includesthe cost of direct materials and incidental costs in bringing these inventories to their existing locationand condition. In the case of work-in-progress and finished goods, cost includes an appropriate shareof production overheads based on normal operating capacity.Net realisable value is the estimated selling price in the ordinary course of business, less the estimatedcosts of completion and the estimated costs necessary to make the sale.The fair value of inventories acquired in a business combination is determined based on its estimatedselling price in the ordinary course of business less the estimated costs of completion and sale, and areasonable profit margin based on the effort required to complete and sell the inventories.

66KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)2. Significant accounting policies (Cont’d)(h)Constructions work-in-progressConstructions work-in-progress represent the gross unbilled amount expected to be collected fromcustomers for contract work performed to date. It is measured at cost plus profit recognised to date lessprogress billing and recognised losses. Cost includes all expenditure related directly to specific projectsand an allocation of fixed and variable overheads incurred in the Group’s contract activities based onnormal operating capacity.Construction work-in-progress is presented as part of “trade and other receivables” as “amount due fromcontract customers” in the statement of financial position for all contracts in which costs incurred plusrecognised profits exceed progress billings. If progress billings exceed costs incurred plus recognisedprofits, then the difference is presented as “amount due to contract customers” which is part of the“deferred income” in the statement of financial position.(i)Cash and cash equivalentsCash and cash equivalents consist of cash in hand, balances and deposits with banks and financialinstitutions, and are used by the Group and the Company in the management of their short termcommitments. For the purpose of the statement of cash flows, cash and cash equivalents are presentednet of bank overdrafts and pledged deposits.(j)Impairment(i)Financial assetsAll financial assets (except for financial assets categorised as fair value through profit or loss,investments in subsidiaries, associates and jointly-controlled entities) are assessed at eachreporting date whether there is any objective evidence of impairment as a result of one or moreevents having an impact on the estimated future cash flows of the asset. Losses expected as aresult of future events, no matter how likely, are not recognised. For an investment in an equityinstrument, a significant or prolonged decline in the fair value below its cost is an objective evidenceof impairment. If any such objective evidence exists, then the financial asset’s recoverable amountis estimated.An impairment loss in respect of loans and receivables is recognised in profit or loss and is measuredas the difference between the asset’s carrying amount and the present value of estimated futurecash flows discounted at the asset’s original effective interest rate. The carrying amount of theasset is reduced through the use of an allowance account.An impairment loss in respect of available-for-sale financial assets is recognised in profit or loss andis measured as the difference between the asset’s acquisition cost (net of any principal repaymentand amortisation) and the asset’s current fair value, less any impairment loss previously recognised.Where a decline in the fair value of an available-for-sale financial asset has been recognised in theother comprehensive income, the cumulative loss in other comprehensive income is reclassifiedfrom equity and recognised to profit or loss.An impairment loss in respect of unquoted equity instrument that is carried at cost is recognisedin profit or loss and is measured as the difference between the asset’s carrying amount and thepresent value of estimated future cash flows discounted at the current market rate of return for asimilar financial asset.Impairment losses recognised in profit or loss for an investment in an equity instrument classifiedas available for sale is not reversed through profit or loss.If, in a subsequent period, the fair value of a debt instrument increases and the increase can beobjectively related to an event occurring after the impairment loss was recognised in profit or loss,the impairment loss is reversed, to the extent that the asset’s carrying amount does not exceedwhat the carrying amount would have been had the impairment not been recognised at the datethe impairment is reversed. The amount of the reversal is recognised in profit or loss.

KNM GROUP BERHAD I Annual Report 201267Notes to the Financial Statements (cont’d)2. Significant accounting policies (Cont’d)(j)Impairment (cont’d)(ii)Other assetsThe carrying amounts of other assets (except for inventories and deferred tax assets) are reviewedat the end of each reporting period to determine whether there is any indication of impairment.If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill andintangible assets that have indefinite useful lives or that are not yet available for use, the recoverableamount is estimated each period at the same time.For the purpose of impairment testing, assets are grouped together into the smallest group of assetsthat generates cash inflows from continuing use that are largely independent of the cash inflowsof other assets or groups of assets (the “cash-generating unit”). Subject to an operating segmentceiling test, for the purpose of goodwill impairment testing, cash-generating units to which goodwillhas been allocated are aggregated so that the level at which impairment testing is performedreflects the lowest level at which goodwill is monitored for internal reporting purposes. The goodwillacquired in a business combination, for the purpose of impairment testing, is allocated to groupof cash- generating units that are expected to benefit from the synergies of the combination.The recoverable amount of an asset or cash-generating unit is the greater of its value in use and itsfair value less costs to sell. In assessing value in use, the estimated future cash flows are discountedto their present value using a pre-tax discount rate that reflects current market assessments ofthe time value of money and the risks specific to the asset or cash-generating unit.An impairment loss is recognised if the carrying amount of an asset or its related cash-generatingunit exceeds its estimated recoverable amount.Impairment losses are recognised in the profit or loss. Impairment loss recognised in respect ofcash-generating units are allocated first to reduce the carrying amount of any goodwill allocated tothe cash-generating unit (group of cash-generating units) and then to reduce the carrying amountsof the other assets in the cash-generating unit (group of cash-generating units) on a pro rata basis.An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairmentlosses recognised in prior periods are assessed at the end of each reporting period for anyindications that the loss has decreased or no longer exists. An impairment loss is reversed if therehas been a change in the estimates used to determine the recoverable amount. An impairmentloss is reversed only to the extent that the asset’s carrying amount does not exceed the carryingamount that would have been determined, net of depreciation or amortisation, if no impairmentloss had been recognised. Reversals of impairment losses are credited to the profit or loss in thefinancial year in which the reversals are recognised.(k)Equity instrumentsInstruments classified as equity are measured at cost on initial recognition and are not remeasuredsubsequently.(i)Issue expensesCosts directly attributable to the issue of instruments classified as equity are recognised as deductionfrom equity.(ii)Ordinary sharesOrdinary shares are classified as equity.

68KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)2. Significant accounting policies (Cont’d)(k)Equity instruments (cont’d)(iii)Repurchase, disposal and reissue of share capital (treasury shares)When share capital recognised as equity is repurchased, the amount of the consideration paid,including directly attributable costs, is recognised as a deduction from equity and is not re-valuedfor subsequent changes in the fair value or market price of shares. Repurchased shares areclassified as treasury shares in the statement of changes in equity.Where treasury shares are distributed as share dividends, the cost of the treasury shares is appliedin the reduction of the share premium account or distributable reserves, or both. Where treasuryshares are reissued by re-sale in the open market, the difference between the sales considerationnet of directly attributable costs and the carrying amount of the treasury shares is recognised inequity, and the surplus or deficit on the transaction is presented in share premium.(iv)Distributions of non-cash assets to owners of the CompanyThe Group measures a liability to distribute non-cash assets as a dividend to the owners of theCompany at fair value of the assets to be distributed. The carrying amount of the dividend isremeasured at each reporting period and at the settlement date, with any changes recogniseddirectly in equity as adjustments to the amount of the distribution. On settlement of the transaction,the Group recognises the difference, if any, between the carrying amount of the assets distributedand the carrying amount of the liability in profit or loss.(v)Warrant reservesThe proceeds from the Rights Issue with Warrants is allocated to both Rights Share and Warrantsusing a reasonable and appropriate method of allocation.The Warrants issued are recognised in the statements of financial position as “Warrant Reserve”at fair value as at the date of issuance and credited to “Warrant Reserve” account which is nondistributable.The “Warrant Reserve” will be transferred to “Share Capital” account upon the exerciseof Warrants. The “Warrant Reserve” in relation to the unexercised Warrants will be transferred to“Share Capital” account upon expiry of the exercise period of the Warrants.(l)Employee benefits(i)Short-term employee benefitsShort-term employee benefits obligations in respect of salaries, annual bonuses, paid annual leaveand sick leave are measured on an undiscounted basis and are expensed as the related serviceis provided.A liability is recognised for the amount expected to be paid under short-term cash bonus if theGroup has a present legal or constructive obligation to pay this amount as a result of past serviceprovided by the employee and the obligation can be estimated reliably.The Group’s contributions to the statutory pension funds are charged to the profit or loss in the yearto which they relate. Once the contributions have been paid, the Group has no further paymentobligations.(ii)Long service leaveThe Group’s net obligation in respect of long-term employee benefits is the amount of future benefitthat employees have earned in return for their service in the current and prior periods. The longtermemployee benefits have been measured at the present value of the future cash outflows tobe made for those benefits.

KNM GROUP BERHAD I Annual Report 201269Notes to the Financial Statements (cont’d)2. Significant accounting policies (Cont’d)(m)Revenue and other income(i)Construction contractsContract revenue includes the initial amount agreed in the contract plus any variations in contractwork, claims and incentive payments to the extent that it is probable that they will result in revenueand can be measured reliably. As soon as the outcome of a construction contract can be estimatedreliably, contract revenue and expenses are recognised in the profit or loss in proportion to thestage of completion of the contract. Contract expenses are recognised as incurred unless theycreate an asset related future contract activity.The stage of completion is assessed by reference to surveys of work performed/completion of aphysical proportion of contract work.When the outcome of a construction contract cannot be estimated reliably, contract revenue isrecognised only to the extent of contract costs incurred that are likely to be recoverable. An expectedloss on a contract is recognised immediately in the profit or loss.(ii)Dividend incomeDividend income is recognised in profit or loss on the date that the Group’s or the Company’s rightto receive payment is established, which in the case of quoted securities is the ex-dividend date.(iii)Management feeManagement fee is recognised on an accrual basis.(iv)ServicesRevenue from services rendered is recognised in the profit or loss in proportion to the stage ofcompletion of the transaction at the end of the reporting period. The stage of completion is assessedby reference to surveys of work performed.(v)Goods soldRevenue from the sale of goods is measured at fair value of the consideration received or receivable,net of returns and allowances, trade discounts and volume rebates. Revenue is recognised whenthe significant risks and rewards of ownership have been transferred to the buyer, recovery of theconsideration is probable, the associated costs and possible return of goods can be estimatedreliably, and there is no continuing management involvement with the goods, and the amount ofrevenue can be measured reliably.(vi)Interest incomeInterest income is recognised as it accrues using the effective interest method in profit or lossexcept for interest income arising from temporary investment of borrowings taken specifically for thepurpose of obtaining a qualifying asset which is accounted for in accordance with the accountingpolicy on borrowing costs.(n)Borrowing costsBorrowing costs that are not directly attributable to the acquisition, construction or production of aqualifying asset are recognised in profit or loss using the effective interest method.

70KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)2. Significant accounting policies (Cont’d)(n)Borrowing costs (cont’d)Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset,which are assets that necessarily take a substantial period of time to get ready for their intended use orsale, are capitalised as part of the cost of those assets.The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditurefor the asset is being incurred, borrowing costs are being incurred and activities that are necessaryto prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs issuspended or ceases when substantially all the activities necessary to prepare the qualifying asset forits intended use or sale are interrupted or completed.(o)Income taxIncome tax expense comprises current and deferred tax. Current tax and deferred tax is recognised inthe profit or loss except to the extent that it relates to a business combination or items recognised directlyin equity or other comprehensive income.Current tax is the expected tax payable or receivable on the taxable income or loss for the year, usingtax rates enacted or substantively enacted at the end of the reporting period, and any adjustment to taxpayable in respect of previous financial years.Deferred tax is recognised using the liability method, providing for temporary differences between thecarrying amounts of assets and liabilities in the statement of financial position and their taxes bases.Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill,the initial recognition of assets or liabilities in a transaction that is not a business combination and thataffects neither accounting nor taxable profit nor loss. Deferred tax is measured at the tax rates that areexpected to be applied to the temporary differences when they reverse, based on the laws that havebeen enacted or substantively enacted by the end of the reporting period.Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current taxliabilities and assets, and they relate to income taxes levied by the same tax authority on the sametaxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on anet basis or their tax assets and liabilities will be realised simultaneously.A deferred tax asset is recognised to the extent that it is probable that future taxable profits will beavailable against which temporary difference can be utilised. Deferred tax assets are reviewed at theend of each reporting period and are reduced to the extent that it is no longer probable that the relatedtax benefit will be realised.Unutilised reinvestment allowance and investment tax allowance, being tax incentive that is not a taxbase of an asset, is recognised as a deferred tax asset to the extent that it is probable that the futuretaxable profits will be available against the unutilised tax incentive can be utilised.(p)Earnings per ordinary shareThe Group presents basic and diluted earnings per ordinary share (“EPS”) data for its ordinary shares.Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Companyby the weighted average number of ordinary shares outstanding during the period, adjusted for ownshares held.Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and theweighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinaryshares, which comprise warrants issued by the Company.

KNM GROUP BERHAD I Annual Report 201271Notes to the Financial Statements (cont’d)2. Significant accounting policies (Cont’d)(q)Operating segmentsAn operating segment is a component of the Group that engages in business activities from which it mayearn revenues and incur expenses, including revenues and expenses that relate to transactions withany of the Group’s other components. All operating segment’s operating results are reviewed regularlyby the chief operating decision maker, which in this case is the Chief Executive Officer of the Group, tomake decisions about resources to be allocated to the segment and assess its performance, and forwhich discrete financial information is available.(r)ProvisionsA provision is recognised if, as a result of a past event, the Group has a present legal or constructiveobligation that can be estimated reliably, and it is probable that an outflow of economic benefit will berequired to settle the obligation. Provisions are determined by discounting the expected future cashflows at a pre-tax rate that reflects current market assessments of the time value of money and the risksspecific to the liability.(s)Contingent(i)Contingent liabilitiesWhere it is not probable that an outflow of economic benefits will be required, or the amount cannotbe estimated reliably, the obligation is not recognised in the statements of financial position and isdisclosed as a contingent liability, unless the probability of outflow of economic benefits is remote.Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrenceof one or more future events, are also disclosed as contingent liabilities unless the probability ofoutflow of economic benefits is remote.Where the Company enters into financial guarantee contracts to guarantee the indebtedness ofother companies within its group, the Company considers these to be insurance arrangements,and accounts for them as such. In this respect, the Company treats the guarantee contract as acontingent liability until such time as it becomes probable that the Company will be required tomake a payment under the guarantee.(ii)Contingent assetsWhere it is not probable that there is an inflow of economic benefits, or the amount cannot beestimated reliably, the asset is not recognised in the statements of financial position and is disclosedas a contingent asset, unless the probability of inflow of economic benefits is remote. Possibleobligations, whose existence will only be confirmed by the occurrence or non-occurrence of oneor more future events, are also disclosed as contingent assets unless the probability of inflow ofeconomic benefits is remote.

72KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)3. Property, plant and equipmentFurniture, CapitalGroup Building Plant and Motor fittings and work-in-Land Buildings improvements machineries vehicles equipment progress TotalRM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000Cost/ValuationAt 1 January 2011 83,557 413,205 7,914 445,497 12,246 60,918 7,964 1,031,301Additions 2,781 2,881 725 24,022 648 10,969 16,206 58,232Disposals – – – (349) (831) (37) (1,872) (3,089)Written off – – – – – (2,735) – (2,735)Acquisition through businesscombination (Note 32) – – – – – 2 – 2Effect of movements inexchange rates (960) 5,256 2,075 2,583 (1,536) 4,094 (2,305) 9,207At 31 December 2011/1 January 2012 85,378 421,342 10,714 471,753 10,527 73,211 19,993 1,092,918Additions 181 3,927 606 25,453 1,188 14,773 19,948 66,076Disposals – – – (2,571) (209) (22) – (2,802)Reclassification – – – 356 – (1) (355) –Acquisition through businesscombination (Note 32) 128,952 – – – – – – 128,952Effect of movements inexchange rates (2,698) (7,343) (5,520) (10,367) (289) (6,198) (85) (32,500)At 31 December 2012 211,813 417,926 5,800 484,624 11,217 81,763 39,501 1,252,644Depreciation andimpairment lossAt 1 January 2011Accumulated depreciation – 19,743 3,112 196,145 9,582 37,007 – 265,589Depreciation for the year 279 15,122 697 35,849 811 8,071 – 60,829Disposals – – – (37) (511) (10) – (558)Written off – – – – – (2,735) – (2,735)Impairment Loss 4,353 – – – – - – 4,353Effect of movements inexchange rates 71 501 1,925 685 (682) 1,126 – 3,626At 31 December 2011/1 January 2012Accumulated depreciation 350 35,366 5,734 232,642 9,200 43,459 – 326,751Accumulated impairment loss 4,353 – – – – – – 4,3534,703 35,366 5,734 232,642 9,200 43,459 – 331,104Depreciation for the year 464 15,317 367 36,611 817 9,060 – 62,636Disposals - – – (1,187) (195) (7) – (1,389)Impairment loss – – – 3,600 – 900 – 4,500Effect of movements inexchange rates (22) 1,933 (3,470) (4,673) (294) (4,027) – (10,553)At 31 December 2012Accumulated depreciation 792 52,616 2,631 263,393 9,528 48,485 – 377,445Accumulated impairment loss 4,353 – – 3,600 – 900 8,8535,145 52,616 2,631 266,993 9,528 49,385 – 386,298Carrying amountsAt 1 January 2011 83,557 393,462 4,802 249,352 2,664 23,911 7,964 765,712At 31 December 2011/1 January 2012 80,675 385,976 4,980 239,111 1,327 29,752 19,993 761,814At 31 December 2012 206,668 365,310 3,169 217,631 1,689 32,378 39,501 866,346

KNM GROUP BERHAD I Annual Report 201273Notes to the Financial Statements (cont’d)3. Property, plant and equipment (Cont’d)3.1 Depreciation charge for the year is allocated as follows:Group2012 2011RM’000 RM’000Income statement (Note 22) 11,595 10,649Construction work-in-progress (Note 12.1) 51,041 50,18062,636 60,8293.2 RevaluationFreehold lands and buildings are stated at Directors’ valuation based on professional valuations on theopen market basis conducted in December 2009 by chartered surveyors in W.M. Malik & Kamaruzaman,C.H. Williams Talhar & Wong, Jiangsu Zhongda Real Estate Appraisal & Consultation Co. Ltd., PT DutaPerkasa Propertindo, Cluttons LLC, Suncorp Valuations Ltd., Gabetti Property Solutions FranchisingAgency, PWC AG WPG and CPCON Gestao Patrimonial.Had freehold lands and buildings been carried at historical cost less accumulated depreciation, the carryingamount of the freehold lands and buildings that would have been included in the financial statements atthe end of the year would be as follows:Group31.12.2012 31.12.2011 1.1.2011RM’000 RM’000 RM’000Freehold lands 152,924 25,868 25,390Buildings 364,700 381,530 379,261517,624 407,398 404,6513.3 SecurityCertain freehold lands and buildings and capital work-in-progress of the Group costing/valued atRM103,158,000 (31 December 2011: RM98,902,000; 1 January 2011: RM88,461,000) in subsidiariesare charged to certain licensed banks as security for credit facilities granted to the subsidiaries (Note16).3.4 LandsIncluded in the carrying amounts of lands are:Group31.12.2012 31.12.2011 1.1.2011RM’000 RM’000 RM’000Leasehold lands- Unexpired period less than 50 years 26,382 27,052 25,960- Unexpired period more than 50 years 13,972 14,364 14,463Freehold lands 166,314 39,259 43,134Included herein leasehold lands that are in substance is a finance lease.206,668 80,675 83,557

74KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)3. Property, plant and equipment (Cont’d)3.5 Assets acquired under finance leaseThe carrying amounts of property, plant and equipment acquired under finance lease purchase agreementsare as follows:Group31.12.2012 31.12.2011 1.1.2011RM’000 RM’000 RM’000Freehold land 4,842 4,923 4,906Building 4,669 4,960 5,156Plant and machineries 30,320 23,972 14,022Furniture, fittings and equipment 153 – 157Motor vehicle 271 – 19Capital work-in-progress – – 22940,255 33,855 24,4894. Intangible assetsOtherintangibleNote Goodwill assets TotalGroup RM’000 RM’000 RM’000CostAt 1 January 2011 788,350 730,462 1,518,812Additions – 3,892 3,892Acquisitions through businesscombination 32 2,794 – 2,794Effect of movements in exchange rates (467) 2,459 1,992At 31 December 2011/1 January 2012 790,677 736,813 1,527,490Additions - 8,012 8,012Effect of movements in exchange rates (14,351) (12,034) (26,385)At 31 December 2012 776,326 732,791 1,509,117Amortisation and impairment lossAt 1 January 2011Accumulated amortisation – (109,604) (109,604)Amortisation for the year – (33,401) (33,401)Impairment loss (2,794) – (2,794)Effect of movements in exchange rates - 833 833At 31 December 2011/1 January 2012Accumulated amortisation – (142,172) (142,172)Accumulated impairment loss (2,794) – (2,794)(2,794) (142,172) (144,966)Amortisation for the year - (32,743) (32,743)Impairment loss (29,557) – (29,557)Effect of movements in exchange rates – 1,794 1,794At 31 December 2012Accumulated amortisation – (173,121) (173,121)Accumulated impairment loss (32,351) – (32,351)(32,351) (173,121) (205,472)

KNM GROUP BERHAD I Annual Report 201275Notes to the Financial Statements (cont’d)4. Intangible assets (Cont’d)OtherintangibleNote Goodwill assets TotalGroup RM’000 RM’000 RM’000Carrying amountsAt 1 January 2011 36.1 788,350 620,858 1,409,208At 31 December 2011/1 January 2012 36.1 787,883 594,641 1,382,524At 31 December 2012 743,975 559,670 1,303,6454.1 GoodwillNote 4.1 Note 4.2The goodwill recognised on the acquisition is attributable mainly to the skills and technical talent of theacquired business’s work force and the synergies expected to be achieved from integrating the companiesinto the Group’s existing oil, gas and petrochemical industry.4.2 Other intangible assetsOther intangible assets comprise technology including patents and software, customers related intangiblesincluding customer contracts and supply agreement and marketing related intangibles includingtradenames. These intangible assets with finite useful lives are amortised over their useful lives rangingfrom 1 to 20 years while the others with infinite useful lives are tested for impairment annually or shorterif there is an indication of impairment.4.3 Amortisation and impairment chargeAmortisation of technology and customers related intangible assets is included in other operating expensesin the profit or loss.4.4 Impairment lossThe Brazil operations unit has in April 2013 executed a new business strategy and alliances with a localpartner in pursuing the process equipment supplies to oil, gas and petrochemical industries. The decisionwas made after having evaluated that the ability of the Brazil operating unit is not expected to generatesufficient sales order on its own which is the operating model inherited since KNM Group acquired theBrazil operation entities in 2008. Accordingly, the goodwill of RM29,557,000, which was attributed to theskills and technical talent of the business acquired in 2008 has been fully impaired during the year.4.5 Impairment testing for cash-generating units containing goodwillFor the purpose of impairment testing, goodwill is allocated to the Group’s geographical unit whichrepresents lowest level within the Group at which the goodwill is monitored for internal managementpurpose.

76KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)4. Intangible assets (Cont’d)4.5 Impairment testing for cash-generating units containing goodwill (cont’d)The aggregate carrying amounts of goodwill allocated to each unit are as follow:Group31.12.2012 31.12.2011 1.1.2011RM’000 RM’000 RM’000Australia unit 6,672 6,672 6,672Germany unit 737,303 749,557 747,023Brazil unit – 31,654 34,655Total 743,975 787,883 788,350The recoverable amounts of the cash-generating units were based on value in use calculations. Thesecalculations use pre-tax cash flow projections based on financial budgets approved by managementcovering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimatedgrowth rates of not higher than the inflation rate or zero subsequent growth rate of the respective unitabove.Value in use was determined by discounting the future cash flows generated from the continuing use ofthe unit and was based on the following key assumptions:(i)(ii)The basis of determination of the budgeted gross margins is based on the estimated achievablemargin of on-going projects and the estimated margins of new projects to be incepted for thebudgeted years.The pre-tax discount rate used is as follows:2012 2011Germany unit 10% 10%Australia unit 12% 12%Brazil unit – 22%The values assigned to the key assumptions represent management’s assessment of future trends inthe industry and are based on both external sources and internal sources (historical data).5. Interests in subsidiariesCompany31.12.2012 31.12.2011 1.1.2011RM’000 RM’000 RM’000Unquoted shares - at cost 518,796 518,796 38,796Less: Impairment loss (100) – –Amount due from subsidiaries 1,142,727 1,092,537 1,092,5371,661,423 1,611,333 1,131,333The amount due from subsidiaries relates to advances which are unsecured, non- repayable and interest freeThe entire non-repayable advances are recognised as the Company’s interest in subsidiaries.Details of the subsidiaries are shown in Note 31 to the financial statements.

KNM GROUP BERHAD I Annual Report 201277Notes to the Financial Statements (cont’d)6. Investments in associatesGroup31.12.2012 31.12.2011 1.1.2011RM’000 RM’000 RM’000Unquoted shares - at cost 236 239 1,190Less: Impairment loss – – (697)Effect of movement in exchange rates (2) 5 (296)234 244 197Share of post-acquisition reserve (193) (199) 25841 45 455Details of the associates are as follows:EffectiveOwnershipCountry ofInterestName of Company Incorporation Principal Activities 31.12.2012 31.12.2011 1.1.2011% % %KNM-DP Fabricators Malaysia Dormant. – – 28Sdn. Bhd.Kimma Thai Co. Ltd. Thailand Investment holding. 49 49 49Dimensi Bumijaya Malaysia Dormant. 40 40 –Sdn. Bhd.Energy Park Investment United Investment holding. – 49 –LimitedKingdomSubsidiary of KNM-DPFabricators Sdn. Bhd.KNM-DP Harta Bina Malaysia Dormant. – – 65Sdn. Bhd.Subsidiary of KimmaThai Co. Ltd.KNM Projects Thailand Operate the business 74 74 74(Thailand) Co. Ltd.of providing the servicesrelating to the arrangementof design, engineering,procurement, constructiontesting and other kinds ofservices relating to oil,gas, petrochemical, minerals,biofuel and energy industries.Subsidiary ofEnergy ParkInvestment LimitedEnergy Park United Dormant. – 49 –-Peterborough Limited Kingdom

78KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)6. Investments in associates (Cont’d)During the financial year, the equity interest of the Group in Energy Park Investment Limited and Energy ParkPeterborough Limited have increased from 49% to 80% and the Group has obtained control over the entity.Hence these entities have been classified as subsidiaries.The summarised financial information on associates is as follows:Group (Loss) / Total TotalRevenues Profit assets liabilities(100%) (100%) (100%) (100%)31 December 2012 RM’000 RM’000 RM’000 RM’000Kimma Thai Co. Ltd.** – (7) 212 223KNM Project (Thailand) Co. Ltd.** 17,129 (9,742) 8,685 20,869Dimensi Bumijaya Sdn. Bhd. – (2) 97 417,129 (9,751) 8,994 21,09631 December 2011Kimma Thai Co. Ltd. ** 6 (3) 220 223KNM Project (Thailand) Co. Ltd. ** 15,636 (1,316) 7,750 8,236Dimensi Bumijaya Sdn. Bhd. – (5) 100 5Energy Park Investment Limited^ – – 5 –Energy Park Peterborough Limited^ – – – –15,642 (1,324) 8,075 8,4641 January 2011KNM-DP Fabricators Sdn. Bhd. ^ – (7) 99 3,407KNM-DP Harta Bina Sdn. Bhd. ^ – (2) 13 5Kimma Thai Co. Ltd. ** – (14) 224 230KNM Project (Thailand) Co. Ltd. ** 5,360 541 2,266 1,3295,360 518 2,602 4,971** Audited by another firm of accountants.^ Equity accounted based on management accounts.7. Investments in jointly-controlled entitiesGroupCompany31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011RM’000 RM’000 RM’000 RM’000 RM’000 RM’000Unquoted shares - at cost 8,224 6,124 837 40 40 –Share of postacquisition reserve (752) (363) (497) – – –Effect of movements inexchange rates (78) 121 (24) – – –7,394 5,882 316 40 40 –

KNM GROUP BERHAD I Annual Report 201279Notes to the Financial Statements (cont’d)7. Investments in jointly-controlled entities (Cont’d)Details of the jointly-controlled entities are as follows:EffectiveOwnershipCountry ofInterestName of Company Incorporation Principal Activities 31.12.2012 31.12.2011 1.1.2011% % %KPN Gas Technology Malaysia Provision of project 50 50 50Sdn. Bhd.management, processmanagement processknow how, engineering,procurement, construction,commissioning, start-up,operation, spare parts andmaintenance for the fieldgas separation and gastreatment facilitiesincluding desalting, gasdehydration, gassweetening, naturalgas liquids recovery, sulphurrecovery and modular units.Verwater KNM Sdn. Malaysia Involved in the business 50 50 50Bhd. **of relocating and jackingof tank catalyst change-outand chemical cleaning work.KNM Grinaker-LTA Republic of Manufacture of process 49.9 49.9 49.9(Proprietary) South Africa and pressure vessels, heatLimited ^transfer equipment, industrialboilers, tank farms, processskids and modules for Republicof South Africa market andon a case to case basis for othermarkets.Petrosab Petroleum Malaysia Dormant. 40 40 50Sdn. Bhd. ^Subsidiary ofPetrosab PetroleumSdn. Bhd.KNM Petrosab Malaysia Operate the business of 52 52 50Engineeringproviding the servicesSdn. Bhd. ^relating to the arrangementof design, engineering,procurement, constructiontesting and other kinds ofservices relating to oil,gas, petrochemical, minerals,biofuel and energy industries.** Audited by another firm of accountants.^ Equity accounted based on management accounts.

80KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)7. Investments in jointly-controlled entities (Cont’d)The Group’s aggregate share of the asset and liabilities of jointly-controlled entities are as follows:Group31.12.2012 31.12.2011 1.1.2011RM’000 RM’000 RM’000Non-current assets 15,285 7,972 89Current assets 10,373 16,220 2,154Non-current liabilities (3,581) (37) (79)Current liabilities (15,180) (18,237) (2,516)Effect of movements in exchange rates 497 (36) –Share of net asset/(liabilities) of jointly-controlled entities 7,394 5,882 (352)The Group’s aggregate share of the revenue and expenses of jointly-controlled entities are as follows:Group31.12.2012 31.12.2011 1.1.2011RM’000 RM’000 RM’000Revenue 22,628 20,954 1,862Expenses (22,577) (20,322) (2,501)Share of net profit/(loss) of jointly-controlled entities 51 632 (639)The Group’s share of the cumulative losses of KPN Gas Technology Sdn. Bhd. amounting to Nil (31 December2011: Nil; 1 January 2011: RM668,000) has not been recognised in the Group’s profit or loss using equitymethod because the Group’s share of losses of the jointly-controlled entity exceeded the carrying amount ofits investment in the jointly-controlled entity.8. Other investmentsGroupRedeemableClub ConvertibleShares Member- PreferenceUnquoted ship Shares Total31 December 2012 RM’000 RM’000 RM’000 RM’000Non-currentAvailable-for-sale financial asset 3,887 100 – 3,987Loans and receivables – – 11,615 11,6153,887 100 11,615 15,602Less: Impairment loss (1,389) (30) – (1,419)2,498 70 11,615 14,183Representing items:At cost 2,498 – 11,615 14,113At fair value – 70 – 702,498 70 11,615 14,183

KNM GROUP BERHAD I Annual Report 201281Notes to the Financial Statements (cont’d)8. Other investments (Cont’d)GroupRedeemableClub ConvertibleShares Member- PreferenceUnquoted ship Shares Total31 December 2011 RM’000 RM’000 RM’000 RM’000Non-currentAvailable-for-sale financial asset 3,988 100 – 4,088Loans and receivables – – 10,000 10,0003,988 100 10,000 14,088Representing items:At cost 3,988 – 10,000 13,988At fair value – 100 – 1003,988 100 10,000 14,0881 January 2011Non-currentAvailable-for-sale financial asset 3,520 100 – 3,6203,520 100 – 3,620Representing items:At cost 3,520 – – 3,520At fair value – 100 – 1003,520 100 – 3,6209. Deferred tax assets/(liabilities)Recognised deferred tax assets/(liabilities)Deferred tax assets and liabilities are attributable to the following:Assets Liabilities Net31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000Property, plant andequipment 3,596 3,004 2,025 (40,699) (44,605) (31,870) (37,103) (41,601) (29,845)Revaluation – – – (232,917) (242,251) (208,492) (232,917) (242,251) (208,492)Provisions 13,690 17,580 21,251 – – – 13,690 17,580 21,251Other items 31,273 11,086 19,110 (5,520) (5,392) (59,220) 25,753 5,694 (40,110)Tax loss carry-forwardand unutilised capitalallowance 365,923 300,662 185,418 – – – 365,923 300,662 185,418Tax assets/(liabilities) 414,482 332,332 227,804 (279,136) (292,248) (299,582) 135,346 40,084 (71,778)Set off of tax (49,848) (52,410) (31,858) 49,848 52,410 31,858 – – –Net tax assets/(liabilities) 364,634 279,922 195,946 (229,288) (239,838) (267,724) 135,346 40,084 (71,778)

82KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)9. Deferred tax assets/(liabilities) (Cont’d)Assets Liabilities Net31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011Company RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000Other items 8 119 – – – – 8 119 –The tax loss carry-forward and unutilised capital allowances do not expire under current tax legislation exceptfor tax loss carry-forward of RM13,731,000 (31.12.2011: RM11,646,000; 1.1.2011: RM8,368,000) relating toan overseas subsidiary which will expire in 2 to 5 years under the legislation of that country.Key sources of estimation uncertaintyThe carrying value of deferred tax assets of the Group at 31 December 2012 is mainly attributed from therecognised tax losses of a subsidiary. Based on the projection future taxable profits, the recognised tax lossesof that subsidiary is expected to be fully utilised.Assumptions about generation of future taxable profits are dependent on management’s projection of futureprofitability of the entity concerned. These assumptions include estimation of future contract revenue thatcould be generated and the related contracts’ profit margins, timing as to when the contracts can be securedincluding project financing and support of lenders to facilitate the timing of commencement of projects, operatingand administrative costs, capital expenditure, other capital management transactions and non-amendmentsof income tax legislation. Actual results could be significantly different from the Directors’ estimate of futureprofitability since anticipated events may not occur as expected and the variation could be material. Thesejudgements and assumptions are subject to significant risks and uncertainties. Hence, there is a possibilitythat changes in circumstances may impact the extent of the amount of deferred tax assets recognised in thefinancial statements.Unrecognised deferred tax assetsNo deferred tax has been recognised for the following item (at gross amounts):Group31.12.2012 31.12.2011 1.1.2011RM’000 RM’000 RM’000Tax loss carry-forward 152,136 128,644 77,537Unutilised capital allowances 931 51 27The above items do not expire under current tax legislation except for tax loss carry-forward of RM136,000(31.12.2011: RM110,000; 1.1.2011: RM88,000) which will expire should there be a substantial change inshareholders (more than 50%). Deferred tax assets have not been recognised in respect of the unutilisedtax losses and unutilised capital allowances above because it is not probable that future taxable profit will beavailable against which the Group can utilise the benefits there from.Movement in temporary differences during the yearRecognised Effect of Recognised Effect ofin income movements in income movementsAt statement in exchange At statement in exchange At1.1.2011 (Note 21) rates 31.12.2011 (Note 21) rates 31.12.2012Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000Property, plant and equipment (29,845) (11,756) – (41,601) 4,498 – (37,103)Revaluation (208,492) (39,341) 5,582 (242,251) 14,830 (5,496) (232,917)Provisions 21,251 (3,671) – 17,580 (3,890) – 13,690Other items (40,110) 45,804 – 5,694 20,059 – 25,753Tax loss carry-forward 185,418 115,244 – 300,662 65,261 – 365,923(71,778) 106,280 5,582 40,084 100,758 (5,496) 135,346

KNM GROUP BERHAD I Annual Report 201283Notes to the Financial Statements (cont’d)9. Deferred tax assets/(liabilities) (Cont’d)Recognised Effect of Recognised Effect ofin income movements in income movementsAt statement in exchange At statement in exchange At1.1.2011 (Note 21) rates 31.12.2011 (Note 21) rates 31.12.2012Cpmpany RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000Other items – 119 – 119 (111) – 8– 119 – 119 (111) – 810. Amount due from a subsidiaryThe amount due from a subsidiary relates to advances which is unsecured, not repayable within the nexttwelve months and bear interest of 2.25% (31 December 2011: 2.25%; 1 January 2011: 2.25%) per annumabove cost of funds.11. InventoriesGroup31.12.2012 31.12.2011 1.1.2011RM’000 RM’000 RM’000At cost:Raw materials 40,899 32,771 33,439Tools and consumables 12,989 14,427 14,562Work in progress 1,970 2,469 513Merchandise for resale – – 24255,858 49,667 48,756At net realisable value:Raw materials 19,529 21,266 14,611Tools and consumables 1,424 1,187 5,69676,811 72,120 69,06312. Trade and other receivablesGroupCompanyNote 31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011RM’000 RM’000 RM’000 RM’000 RM’000 RM’000TradeTrade receivables 375,687 334,700 254,689 – – –Amount due fromcontract customers 12.1 486,839 450,390 395,151 – – –862,526 785,090 649,840 – – –

84KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)12. Trade and other receivables (Cont’d)GroupCompanyNote 31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011RM’000 RM’000 RM’000 RM’000 RM’000 RM’000Non-tradeAmount due from- subsidiaries 12.2 – – – 344,731 9,341 179,744- associates 12.2 11,590 4,148 1,088 14 14 13- jointly-controlledentities 12.2 7,435 17,621 826 3,320 1,360 –Other receivables 21,131 33,959 17,032 14 3,299 2,964Deposits 12.3 6,543 6,642 9,413 3 3 23Prepayment 12.4 73,245 106,398 40,207 2,413 2,821 1,770119,944 168,768 68,566 350,495 16,838 184,514982,470 953,858 718,406 350,495 16,838 184,51412.1 Construction work-in-progressGroupNote 31.12.2012 31.12.2011 1.1.2011RM’000 RM’000 RM’000Aggregate costs incurred to date 4,199,409 3,294,930 2,344,350Add: Net attributable profits 736,330 666,340 536,931Less: Foreseeable losses (32,917) (62,897) (12,521)4,902,822 3,898,373 2,868,760Less: Progress billings (4,653,745) (3,838,143) (2,530,955)249,077 60,230 337,805Represented by:Amount due from contract customers 486,839 450,390 395,151Amount due to contract customers 18 (237,762) (390,160) (57,346)249,077 60,230 337,805Additions to aggregate costs incurred during the year include:Group2012 2011RM’000 RM’000Depreciation of property, plant and equipment (Note 3.1) 51,041 50,180Hire of plant and machineries 6,315 6,420Rental of premises 6,798 6,475Rental of machineries 137 146Staff costs 235,619 213,379

KNM GROUP BERHAD I Annual Report 201285Notes to the Financial Statements (cont’d)12. Trade and other receivables (Cont’d)12.2 Amount due from subsidiaries, associates and jointly-controlled entitiesThe amounts due from subsidiaries, associates and jointly-controlled entities are unsecured, interestfree and repayable on demand except for at 1 January 2011, there was RM143,283,000 due from asubsidiary in which was subjected to interest of 1.30% to 2.50% per annum.12.3 DepositsIncluded in deposits of the Group are rental deposit for building of RM165,000 (31 December 2011:RM165,000; 1 January 2011: RM165,000) paid to a company in which certain directors have financialinterest.12.4 PrepaymentsIncluded in prepayment of the Group are advance payments to suppliers at RM60,258,000 (31 December2011: RM96,852,000; 1 January 2011: RM31,390,000).13. Derivative financial assets/(liabilities)31.12.2012 31.12.2011 1.1.2011Nominal Nominal Nominalvalue Assets Liabilities value Assets Liabilities value Assets LiabilitiesRM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000GroupDerivatives held fortrading at fairvalue through profitor loss- Forward foreignexchange contracts(“FFEC”) 374,755 7,385 (5,099) 576,745 17,836 (12,959) 523,042 15,330 (7,126)- Interest rate swaps 250,950 – (31) 250,950 – (475) – – –Derivatives used forhedging 177,101 1,297 (1,241) 105,498 2,748 (7,920) 166,820 1,001 (2,514)802,806 8,682 (6,371) 933,193 20,584 (21,354) 689,862 16,331 (9,640)CompanyDerivatives held fortrading at fairvalue through profitor loss- Interest rate swaps 250,950 – (31) 250,950 – (475) – – –Forward foreign exchange contracts are used to manage the foreign currency exposures arising from theGroup’s receivables and payables denominated in currencies other than the functional currencies of Groupentities. Most of the forward exchange contracts have maturities of less than one year after the end of thereporting period. Where necessary, the forward contracts are rolled over at maturity.Interest rate swap is used to achieve an appropriate mix of fixed and floating interest rate exposure withinthe Group’s policy. In 2011, financial year, the Group entered into interest rate swap with nominal value ofRM250,950,000 to hedge the cash flow risk in relation to the floating interest rate of a bank loan. The interestrate swap was entered into for a period of two years and had a fixed swap rate of 3.26%.

86KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)14. Cash and cash equivalentsGroup31.12.2012 31.12.2011 1.1.2011RM’000 RM’000 RM’000Cash and bank balances 182,913 341,381 211,390Deposits with licensed banks 8,888 65,061 79,135Deposits with other financial institutions – 9,987 5,712191,801 416,429 296,237Company31.12.2012 31.12.2011 1.1.2011RM’000 RM’000 RM’000Cash and bank balances 17,830 622 518Deposits with other financial institutions – – 3,25917,830 622 3,77715. Capital and reserves15.1 Share capitalOrdinary shares of RM1.00/RM0.25* eachGroup and Company31.12.2012 31.12.2011 1.1.2011Number Number Numberof shares Amount of shares Amount of shares Amount’000 RM’000 ’000 RM’000 ’000 RM’000Authorised:At 1 January 1,250,000 1,250,000 1,250,000 1,250,000 5,000,000* 1,250,000Share Consolidation* – – – – (3,750,000) –Created during the year 1,000,000 1,000,000 – – – –At 31 December 2,250,000 2,250,000 1,250,000 1,250,000 1,250,000 1,250,000Ordinary shares of RM1.00/RM0.25* eachIssued and fully paid shares:At 1 January 1,001,093 1,001,093 1,001,093 1,001,093 4,004,370* 1,001,093Movement during the yearpursuant to:- Share Consolidation* – – – - (3,003,277) –- Issue of ordinary sharespursuant to rights issue 488,921 488,921 – – – –- Allocation of warrantreserve – (44,981) – – – –At 31 December 1,490,014 1,445,033 1,001,093 1,001,093 1,001,093 1,001,093* Share consolidation of every four (4) ordinary shares of RM0.25 each into one (1) ordinary shareof RM1.00 each.

KNM GROUP BERHAD I Annual Report 201287Notes to the Financial Statements (cont’d)15. Capital and reserves (Cont’d)15.2 Treasury sharesOn 26 June 2012, the shareholders of the Company renewed the Company’s plan to repurchase itsown shares. During the financial year, the Company repurchased 20,000 of its issued ordinary shares ofRM1.00 each listed on the Main Market of Bursa Malaysia Securities Berhad from the open market at anaverage price of approximately RM0.72 per share. The total consideration paid was RM14,416 includingtransaction costs of RM116. The repurchase transactions were financed by internally generated funds.The shares repurchased are retained as treasury shares. None of the treasury shares held were resoldor cancelled during the financial year.As at 31 December 2012, the Company held 23,261,275 ordinary shares of RM1.00 each as treasuryshares out of its total issued and paid-up share capital. Hence, the number of outstanding shares inissue and paid-up after deducting treasury shares as at 31 December 2012 is 1,466,751,977 ordinaryshares of RM1.00 each. The treasury shares have no rights to voting, dividends or participation in otherdistribution.15.3 Revaluation reserveThe revaluation reserve relates to the revaluation of lands and buildings.15.4 Translation reserveThe translation reserve comprises all foreign currency differences arising from the translation of thefinancial statements of the Group entities with functional currency other than RM as well as the exchangedifferences arising from monetary items that in substance form the Company’s net investment insubsidiaries.15.5 Hedging reserveThe hedging reserve comprises the effective portion of the cumulative net change in the fair value ofcash flow hedges related to hedged transactions that have not yet occurred.15.6 Fair value reserveThe fair value reserve comprises the cumulative net change in the fair value of available-for-sale financialassets until the investments are derecognised or impaired.15.7 Warrant reserveThere were no warrants exercised since its issuance. The number of warrants unexercised at the endof the reporting period was 488,920,659 (2011: Nil).15.8 Retained earningsThe Finance Act 2007 introduced a single tier company income tax system with effect from 1 January2008. As such, the remaining Section 108 tax credit is available to the Company until such time thecredit is fully utilised or upon expiry of the six year transitional period on 31 December 2013, whicheveris earlier.

88KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)16. Loans and borrowingsGroup31.12.2012 31.12.2011 1.1.2011RM’000 RM’000 RM’000Non-currentFloating rate term loans – secured 73,843 286,510 289,734– unsecured 9,156 19,739 15,838Fixed rate term loans – unsecured 1,136 1,517 1,862Murabahah Commercial Paper (CP)/MediumTerm Notes (MTN) – unsecured – 45,000 60,000Floating rate finance lease liabilities 14,334 6,764 5,784Fixed rate finance lease liabilities 6,369 6,860 7,275104,838 366,390 380,493CurrentBank overdrafts – secured 6,470 17,262 5,293– unsecured – – 245Bills payable – unsecured 220,346 207,063 73,782Floating rate term loans – secured 305,188* 104,103 107,390– unsecured 104,050* 24,523 47,058Fixed rate term loans – secured – – 4,167– unsecured 3,308 3,649 5,473Murabahah Commercial Paper (CP)/MediumTerm Notes (MTN) – unsecured 95,000 145,000 205,000Revolving credit – unsecured 90,500 270,816 209,552Floating rate finance lease liabilities 5,384 4,277 5,559Fixed rate finance lease liabilities 1,351 1,201 1,122831,597 777,894 664,641936,435 1,144,284 1,045,134* Included in secured and unsecured floating rate term loans are non-current portion of borrowing ofRM150,570,000 and RM48,977,000 respectively that were reclassified as current (see Note 16.6)Company31.12.2012 31.12.2011 1.1.2011RM’000 RM’000 RM’000Non-currentFloating rate term loans - secured – 250,950 250,950CurrentFloating rate term loans - secured 301,140* 100,380 100,380301,140 351,330 351,330* Included in secured floating rate term loans are non-current portion of borrowing of RM150,570,000 thatwere reclassified as current (see Note 16.6)

KNM GROUP BERHAD I Annual Report 201289Notes to the Financial Statements (cont’d)16. Loans and borrowings (Cont’d)16.1 The bank overdraft for the Malaysian’s subsidiaries are subject to interest rate at 0.75% (31 December2011: 0.50 % to 1.00%; 1 January 2011: 0.50% to 1.00%) above the lenders’ base lending rate per annumwhilst the bank overdraft for the overseas subsidiaries are subject to interest ranging from 14.52% to24.60% (31 December 2011: 14.52% to 24.60%; 1 January 2011: 13.89% to 26.82%) per annum.The bill payables are subject to interest ranging from 1.23% to 6.25% (31 December 2011: 0.92% to4.50%; 1 January 2011: 0.83% to 3.71%) per annum.In connection with the bank overdraft and trade facilities, the subsidiaries have agreed on the followingsignificant covenants, among others:(i)(ii)(iii)(iv)(v)The Group debt to equity ratio shall not be more than 1.75 (2011: 1.75) times at all times.The ratio of profit before interest and tax to interest expense of a subsidiary shall not be less than2 (2011: 2) times at all times.Not to dispose or divest any of its tangible assets which will materially and adversely affect itsexisting business operation (other than in the ordinary course of business).Not to dispose or divest any of its material subsidiaries.Maintenance of equity to asset ratio of not less than 20% based on latest audited financial statementof a foreign subsidiary, prepared in accordance with the local Generally Accepted AccountingPrinciples in that country.16.2 The secured term loans of the Group and the Company are secured by way of:(i)(ii)Legal charge over the industrial land and buildings of certain subsidiaries.Pledge of the Group’s shares in a foreign subsidiary, including assignment over all dividendpayments arising there from.The secured term loans are subject to interest ranging from 2.69% to 6.33% (31 December 2011: 2.81%to 5.71%; 1 January 2011: 2.54% to 12.68%) per annum.The term loans facility covenants include the following:(i)(ii)The Group’s debt to equity ratio shall not be more than 1.75 (2011: 1.75) times at all times.The annual finance service cover ratio of the Group shall not be less than 1.50 (2011: 1.50) basedon the latest audited financial statement on consolidated basis.16.3 The unsecured term loans of the Group were supported by way of corporate guarantee by the Company.The unsecured term loans were subject to interest ranging from 1.40% to 7.56% (31 December 2011:1.17% to 7.40%; 1 January 2011: 1.09% to 6.46%) per annum.16.4 CP/MTN programme has the following significant covenants:(i)The Group’s debt to equity ratio (DE ratio) shall not be more than 1.75 (2011: 1.75) times at alltimes.(ii) The annual finance service cover ratio (FSCR ratio) of the Group shall not be less than 1.5 (2011:1.5) based on the latest audited financial statement on consolidated basis.

90KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)16. Loans and borrowings (Cont’d)16.4 CP/MTN programme has the following significant covenants: (cont’d)(iii)Not to declare or pay any dividend or make any distributions whether income or capital in natureto its shareholders in the event that:-(a)(b)a breach of financial covenant would occur if such payment is made; oran event of default has occurred and is continuing or following such payment, an event ofdefault would occur.(iv)First legal charge over the Syariah compliant Designated Accounts and monies standing therein.The CP/MTN are subject to profit rates ranging from 3.80% to 6.00% (2011: 3.80% to 5.80%) per annum.The Group DE Ratio and annual FSCR Ratio are calculated for each financial year based on the latestaudited financial statements of the Group on a consolidated basis. In the event the FSCR Ratio fallsbelow 1.50 times, the Issuer shall remedy the breach within one (1) month period, failing which it will beconsidered an event of default.16.5 Revolving credit of the Group granted by the licensed banks has the following significant covenants:(i)(ii)(iii)The Group debt to equity ratio shall not be more than 1.75 (2011: 1.75) times at all times.The Group consolidated debt to EBITDA ratio shall not exceed 5 (2011: 3.5) times at all times.The debts service cover ratio of the Group shall not be less than 1.5 (2011: 1.5) computed on biannualbasis (in ending June and Dec).(iv) The finance service cover ratio (FSCR ratio) of the Group shall not be less than 1.5 (2011: 1.5)computed semi annually based on half yearly financial statements and annual audited financialstatement.The revolving credits were subject to interest ranging from 4.47% to 6.00% (31 December 2011: 2.19%to 5.00%; 1 January 2011: 1.98% to 4.18%) per annum.16.6 Covenants EventsFor the reporting period ended 31 December 2012, the Financial Service Cover Ratio and the DebtsService Cover Ratio fell short of the prescribed financial covenant ratios. In order to rectify the situation,subsequent to the financial year end, the Company and certain subsidiaries have successfully obtainedindulgence/waiver from the affected lending institutions.The Group continues to engage its financiers to regularise the shortfall in the prescribed financial covenantratio including rebalancing the maturity profile of its loan portfolio.As at the issue date of this financial statements, there were no indications or incidences of “defaultnotice” having been served or demand of accelerated payment has been made by the financiers to theCompany or its subsidiaries as a result of the covenant shortfall.

KNM GROUP BERHAD I Annual Report 201291Notes to the Financial Statements (cont’d)16. Loans and borrowings (Cont’d)16.7 Finance lease liabilitiesFinance lease liabilities are payable as follows:Present Present PresentFuture value of Future value of Future value ofminimum minimum minimum minimum minimum minimumlease lease lease lease lease leasepayments Interest payments payments Interest payments payments Interest payments31.12.2012 31.12.2012 31.12.2012 31.12.2011 31.12.2011 31.12.2011 1.1.2011 1.1.2011 1.1.2011Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000Less than one year 7,910 (1,175) 6,735 6,397 (919) 5,478 7,593 (912) 6,681Between one andfive years 20,544 (2,103) 18,441 11,805 (1,420) 10,385 11,618 (1,788) 9,830More than five years 2,407 (145) 2,262 3,493 (254) 3,239 3,481 (252) 3,22930,861 (3,423) 27,438 21,695 (2,593) 19,102 22,692 (2,952) 19,740The finance lease liabilities are subject to interest ranging from 1.88% to 19.42% (31 December 2011:4.2% to 19.4%; 1 January 2011: 4.1% to 23.1%) per annum.17. Long term payablesGroupCompanyNote 31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011RM’000 RM’000 RM’000 RM’000 RM’000 RM’000Social security institutions 17.1 16,672 14,673 14,988 – – –Other long term payables 4,746 6,029 10,564 – – –Amount due to a subsidiary 17.2 – – – 483,941 – –21,418 20,702 25,552 483,941 – –17.1 Amounts payable to social security institutions of foreign subsidiaries are unsecured, interest free (31December 2011: Nil; 1 January 2011: 4%) and not repayable within the next twelve months.17.2 Amount due to a subsidiary relates to advances which are unsecured, not repayable within the nexttwelve months and bear interest of 6.56% per annum.18. Deferred incomeGroupNote 31.12.2012 31.12.2011 1.1.2011RM’000 RM’000 RM’000Amount due to contract customers 12.1 237,762 390,160 57,346

92KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)19. Trade and other payablesGroupCompanyNote 31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011RM’000 RM’000 RM’000 RM’000 RM’000 RM’000TradeTrade payables 376,185 337,761 250,488 – – –Non-tradeAmount due to- subsidiaries 19.1 – – – 612 344,362 175- associates 19.1 168 – – – – –- jointly-controlled entities 19.1 10,328 9,366 215 – – –- related parties 19.1 49,333 14,127 7,030 33,218 – –Other payables 60,205 56,692 29,047 4,392 101 170Accrued expenses 80,592 78,864 93,154 3,572 3,563 3,308200,626 159,049 129,446 41,794 348,026 3,653576,811 496,810 379,934 41,794 348,026 3,65319.1 Amount due to subsidiaries, associates, jointly-controlled entities and related partiesThe amounts due to subsidiaries, associates, jointly-controlled entities and related parties are unsecured,interest free and repayable on demand.20. Finance costsGroupCompany2012 2011 2012 2011RM’000 RM’000 RM’000 RM’000Interest expenses of financial liabilitiesthat are not at fair value through profitor loss:- Term loans 32,885 25,702 19,491 19,493- CP/MTN 8,325 9,771 – –- Revolving credit 8,706 8,708 – –- Bank overdrafts 3,438 2,540 – –- Finance lease 2,109 2,287 – –55,463 49,008 19,491 19,493Bank and other charges 4,899 5,839 1,685 160,362 54,847 21,176 19,494Interest expenses:- Recognised in profit or loss 60,362 52,190 21,176 19,494- Attributed to contract cost – 2,657 – –60,362 54,847 21,176 19,494

KNM GROUP BERHAD I Annual Report 201293Notes to the Financial Statements (cont’d)21. Tax expenseGroupCompany2012 2011 2012 2011RM’000 RM’000 RM’000 RM’000Current tax expenseMalaysian- current year 2,159 8,026 1,563 973- over provision in prior year (48) (887) (65) (324)Overseas- current year 37,852 36,327 – –- under provision in prior year 1,743 714 – –41,706 44,180 1,498 649Deferred tax expense- current year (100,695) (113,798) 111 (119)- (over)/under provision in prior year (63) 7,518 – –(100,758) (106,280) 111 (119)Total tax expense (59,052) (62,100) 1,609 530Reconciliation of tax expensesProfit /(Loss) for the year 80,088 (93,782) 37,007 3,128Total income tax expense (59,052) (62,100) 1,609 530Profit /(Loss) excluding tax 21,036 (155,882) 38,616 3,658Income tax using Malaysian tax rate of25% (2011: 25%) 5,259 (38,971) 9,654 914Effect of tax rates in foreign jurisdictions* (4,485) 9,256 – –Non-deductible expenses 12,184 33,473 520 248Tax exempt income (4,361) (8,333) (8,500) (308)Tax incentive # (88,950) (88,950) – –Effect of tax losses not recognised 18,203 22,498 – –Utilisation of previously unrecognisedtemporary differences 1,466 1,582 – –(60,684) (69,445) 1,674 854Under/(Over) provision in prior year- Current tax expense 1,695 (173) (65) (324)- Deferred tax expense (63) 7,518 – –(59,052) (62,100) 1,609 530* Tax rates in several foreign jurisdictions are different from the tax rates in Malaysia.# This tax incentive was granted pursuant to the acquisition of a foreign subsidiary. Incentive claimable inform of deductible expenses over 4 years’ period from Year of Assessment 2009.

94KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)22. Profit/(Loss) for the yearGroupCompany2012 2011 2012 2011RM’000 RM’000 RM’000 RM’000Profit /(Loss) for the year isarrived at after charging:Auditors’ remuneration- Audit feesKPMG Malaysia- current year 568 577 150 150- prior year 9 66 – (35)Overseas affiliates of KPMGMalaysia- current year 2,523 2,537 – –Other auditors 40 12 – –- Non-audit feesKPMG Malaysia 54 53 54 –Local affiliates of KPMGMalaysia 432 447 5 –Overseas affiliates of KPMGMalaysia 830 685 – –Depreciation of property, plantand equipment (Note 3.1) 11,595 10,649 – –Impairment loss:- Property, plant and equipment 4,500 – – –- Trade receivables 6,784 12,829 – –- Other receivables 555 – – –- Amount due from subsidiaries – – 284 –- Investment in subsidiaries – – 100 –Amortisation of intangible assets 32,743 33,401 – –Rental of premises 13,645 13,596 – –Rental of equipment 3,377 3,226 – –Personnel expenses- Contribution to Employees’Provident Fund 10,020 10,113 – –- Wages, salaries and others 147,619 130,964 390 399Loss on disposal of property, plantand equipment 1,101 – – –Provision for foreseeable losses 13,565 50,376 – –Impairment of goodwill 29,557 2,794 – –Impairment of other investment 1,389 – – –Provision for late delivery charges – 13,104 – –and after crediting:Net gain on foreign exchange 5,618 7,304 15 1,232Bad debts recovered 258 – – –Gain on disposal of property, plantand equipment – 70 – –Reversal of impairment loss oftrade receivables 5,561 9,548 – –Reversal of late delivery charges 1,116 – – –

KNM GROUP BERHAD I Annual Report 201295Notes to the Financial Statements (cont’d)23. Earnings per ordinary share - GroupBasic earnings/(loss) per ordinary shareThe calculation of basic earnings per ordinary share at 31 December 2012 was based on the profit attributable toowners of the Company of RM82,026,000 (2011: loss attributable to owners of the Company of RM91,766,000)and the weighted average number of ordinary shares outstanding during the year of 1,038,120,000 (2011:978,580,000).Group2012 2011’000 ’000Issued ordinary shares at beginning of the year 1,001,093 1,001,093Effect of Rights Issue 60,278 –Effect of treasury shares held (23,251) (22,513)Weighted average number of ordinary shares 1,038,120 978,580Group2012 2011sensenBasic earnings/(loss) per ordinary share 7.90 (9.38)Diluted earnings per ordinary shareThe Group has no dilution in its earnings per ordinary share at 31 December 2012 as the average fair valueof the ordinary shares for the year ended 31 December 2012 is lower than the exercise price of the warrant.Therefore, no consideration for adjustment in the form of an increase in the number of shares has been usedin calculating potential dilution of its earnings per ordinary share.24. DividendsSen perTotalshare amount Date of(net) RM’000 payment2011Interim 2010 ordinary (tax exempt) 3.0 29,343 19 April 2011The Directors do not recommend any dividend to be paid for the financial year under review.25. Contingent liabilities - unsecuredCompany31.12.2012 31.12.2011 1.1.2011RM’000 RM’000 RM’000Guarantees issued forborrowings of subsidiaries 1,091,864 1,509,671 1,882,871

96KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)25. Contingent liabilities - unsecured (Cont’d)On 13 March 2012, a foreign Tax Authorities has issued a preliminary tax notification amounting to RM7.8million(equivalent to EUR1.97 million) against a foreign subsidiary following a tax inspection on tax years from 2008to 2011. Subsequent to that notification, the subsidiary has provided the necessary documentation to the TaxAuthorities to support its position. Notwithstanding the information provided, on 22 April 2013, the subsidiaryhas received a tax assessment relating only to the tax year 2008 and on the same matter which the TaxAuthorities has challenged and reported in their preliminary notification. Although no assessments have beenraised in respect of the other tax years (2009 to 2011) inspected, the matters reported in the preliminary taxnotification should be considered as still open to assessments.Notwithstanding the above assessment, management of the Group, also with the support of the subsidiary’sindependent tax advisor, believes that the subsidiary has strong grounds to defend its tax position.26. CommitmentsGroup31.12.2012 31.12.2011 1.1.2011RM’000 RM’000 RM’000Capital commitments:Property, plant and equipmentContracted but not provided for in thefinancial statements 14,361 1,836 71,541Authorised but not contracted for 27,124 41,067 37,82541,485 42,903 109,366Jointly-controlled entities commitments:Capital commitments of the Group to thejointly-controlled entities 7,686 10,499 18,200InvestmentAuthorised but not contracted for 5,013 5,064 7,39927. Related partiesIdentity of related partiesFor the purposes of these financial statements, parties are considered to be related to the Group or the Companyif the Group or the Company has the ability, directly or indirectly, to control or jointly control the party or exercisesignificant influence over the party in making financial and operating decisions, or vice versa, or where theGroup or the Company and the party are subject to common control or common significant influence. Relatedparties may be individuals or other entities.Related parties also include key management personnel defined as those persons having authority andresponsibility for planning, directing and controlling the activities of the Group either directly or indirectly. Thekey management personnel include all the Directors of the Group, and certain members of senior managementof the Group.

KNM GROUP BERHAD I Annual Report 201297Notes to the Financial Statements (cont’d)27. Related parties (Cont’d)Identity of related parties (cont’d)Controlling related party relationships are as follows:(i) Its subsidiaries companies as disclosed in Note 31.(ii) Its associates as disclosed in Note 6.(iii) Its jointly-controlled entities as disclosed in Note 7.(iv)(v)(vi)The substantial shareholders of the Company, Inter Merger Sdn. Bhd..Inter Merger Sdn. Bhd. and IM Bina Sdn. Bhd., companies in which the directors, Lee Swee Eng andGan Siew Liat have substantial financial interest.Tofield Realty Development Corporation, wholly-owned subsidiary of Asiavertek Sdn. Bhd. of which LeeSwee Eng and Gan Siew Liat have substantial financial interest.(vii) Nasser Hazza is an entity controlled by Mohammed Nasser Hazza Al Fehaid Al Subaei, a director ofSaudi KNM Ltd.(viii) KPS Technology & Engineering LLC, a company in which Lee Swee Eng is a substantial shareholder.(ix)Key management personnel.Related party transactions have been entered into in the normal course of business under negotiated terms.The significant related party transactions of the Group and the Company are shown below:GroupCompany2012 2011 2012 2011RM’000 RM’000 RM’000 RM’000A. SubsidiariesManagement fees received – – (7,894) (4,589)Loan interest received – – (22,650) (22,813)Dividend income – – – –B. AssociatesKNM Projects (Thailand) Co. LtdAdministrative and other supportservices (227) (297) – –Contract billing payable 639 – – –Interest receivable (273) – – –Finance charges receivable (161) – – –

98KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)27. Related parties (Cont’d)GroupCompany2012 2011 2012 2011RM’000 RM’000 RM’000 RM’000C. Jointly controlled entitiesKNM Petrosab EngineeringSdn. Bhd.Interest receivable (108) (402) – –Finance charges receivable (149) (414) – –Contract billing receivable 223 – – –Contract billing payable (319) – – –Administrative and other supportservices (105) – – –KPN Gas Technology Sdn. Bhd.Contract billing receivable (8,628) (3,639) – –Contract billing payable 24,605 14,187 – –Verwater KNM Sdn. Bhd.Contract billing payable – 506 – –KNM Grinaker-LTA (Proprietary) LtdAdministrative and other supportservices (252) (335) – –Contract billing receivable (109) – – –Interest receivable (271) – – –D. Related partiesInter Merger Sdn. Bhd.Rental of premises 1,209 1,209 – –Administrative charges 675 617 – –IM Bina Sdn. Bhd.Contract billing payable 7,727 8,010 – –Tofield Realty DevelopmentCorporationGeneral Mechanical and engineering 489 488 – –Nasser HazzaGeneral Mechanical and engineering – 1,317 – –Advances – 1,790 – –Civil works – 2,704 – –KPS Technology & Engineering LLCAdministrative and other supportservices 200 919 – –

KNM GROUP BERHAD I Annual Report 201299Notes to the Financial Statements (cont’d)27. Related parties (Cont’d)GroupCompany2012 2011 2012 2011RM’000 RM’000 RM’000 RM’000E. Key management personnelDirectors- Fees 890 853 890 853- Remuneration 3,125 3,411 2,611 2,720- Employee benefits(including estimated monetaryvalue of benefit-in-kind) 38 50 38 504,053 4,314 3,539 3,623Subsidiaries directors- Short-term employee benefits 7,726 8,666 - -Other key management personnel- Short-term employee benefits 4,658 4,875 - -16,437 17,855 3,539 3,623Other key management personnel comprise persons other than the Directors of Group entities, havingauthority and responsibility for planning, directing and controlling the activities of the Group entities eitherdirectly or indirectly.Significant related party balances related to the above transactions are disclosed in Notes 5,10,12,19. Thereare no impairment loss and bad debts written off in respect of its amount due from related parties.28. Financial instruments28.1 Categories of financial instrumentsThe table below provides an analysis of financial instruments categorised as follows:(a)(b)(c)(d)Loans and receivables (“L&R”);Fair value through profit or loss (“FVTPL”);- Held for trading (“HFT”), orAvailable-for-sale financial assets (“AFS”); andFinancial liabilities measured at amortised cost (“FL”).

100KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)28. Financial instruments (Cont’d)28.1 Categories of financial instruments (cont’d)DerivativesCarrying FVTPL used foramount L&R -HFT AFS hedgingRM’000 RM’000 RM’000 RM’000 RM’00031 December 2012Financial assetsGroupOther investments 14,183 11,615 – 2,568 –Trade and other receivables 909,225 909,225 – – –Derivative financial assets 8,682 – 7,385 – 1,297Cash and cash equivalents 191,801 191,801 – – –1,123,891 1,112,641 7,385 2,568 1,297CompanyAmount due from a subsidiary 301,140 301,140 – – –Trade and other receivables 348,082 348,082 – – –Cash and cash equivalents 17,830 17,830 – – –667,052 667,052 – – –DerivativesCarrying FVTPL used foramount FL -HFT hedgingRM’000 RM’000 RM’000 RM’000Financial liabilitiesGroupLoans and borrowings (936,435) (936,435) – –Trade and other payables (598,229) (598,229) – –Derivative financial liabilities (6,371) – (5,130) (1,241)(1,541,035) (1,534,664) (5,130) (1,241)CompanyLoans and borrowings (301,140) (301,140) – –Trade and other payables (525,735) (525,735) – –Derivative financial liabilities (31) – (31) –(826,906) (826,875) (31) –

KNM GROUP BERHAD I Annual Report 2012101Notes to the Financial Statements (cont’d)28. Financial instruments (Cont’d)28.1 Categories of financial instruments (cont’d)DerivativesCarrying FVTPL used foramount L&R -HFT AFS hedgingRM’000 RM’000 RM’000 RM’000 RM’00031 December 2011Financial assetsGroupOther investments 14,088 10,000 – 4,088 –Derivative financial assets 20,584 – 17,836 – 2,748Trade and other receivables 847,460 847,460 – – –Cash and cash equivalents 416,429 416,429 – – –1,298,561 1,273,889 17,836 4,088 2,748CompanyAmount due from a subsidiary 351,330 351,330 – – –Trade and other receivables 14,017 14,017 – – –Cash and cash equivalents 622 622 – – –365,969 365,969 – – –DerivativesCarrying FVTPL used foramount FL -HFT hedgingRM’000 RM’000 RM’000 RM’00031 December 2011Financial liabilitiesGroupLoans and borrowings (1,144,284) (1,144,284) – –Trade and other payables (517,512) (517,512) – –Derivative financial liabilities (21,354) – (13,434) (7,920)(1,683,150) (1,661,796) (13,434) (7,920)CompanyLoans and borrowings (351,330) (351,330) – –Trade and other payables (348,026) (348,026) – –Derivative financial liabilities (475) – (475) –(699,831) (699,356) (475) –

102KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)28. Financial instruments (Cont’d)28.1 Categories of financial instruments (cont’d)DerivativesCarrying FVTPL used foramount L&R -HFT AFS hedgingRM’000 RM’000 RM’000 RM’000 RM’0001 January 2011Financial assetsGroupOther investments 3,620 – – 3,620 –Trade and other receivables 678,199 678,199 – – –Derivative financial assets 16,331 - 15,330 – 1,001Cash and cash equivalents 296,237 296,237 – – –994,387 974,436 15,330 3,620 1,001CompanyAmount due from a subsidiary 351,330 351,330 – – –Trade and other receivables 182,744 182,744 – – –Cash and cash equivalents 3,777 3,777 – – –537,851 537,851 – – –DerivativesCarrying FVTPL used foramount FL -HFT hedgingRM’000 RM’000 RM’000 RM’000Financial liabilitiesGroupLoans and borrowings (1,045,134) (1,045,134) – –Trade and other payables (405,486) (405,486) – –Derivative financial liabilities (9,640) – (7,126) (2,514)(1,460,260) (1,450,620) (7,126) (2,514)CompanyLoans and borrowings (351,330) (351,330) – –Trade and other payables (3,653) (3,653) – –Derivative financial liabilities – – – –(354,983) (354,983) – –

KNM GROUP BERHAD I Annual Report 2012103Notes to the Financial Statements (cont’d)28. Financial instruments (Cont’d)28.2 Net gains and losses arising from financial instrumentsGroupCompany2012 2011 2012 2011RM’000 RM’000 RM’000 RM’000Net gains/(losses) arising on:Fair value through profit or loss:- Held for trading (“FFEC”) 2,310 (770) – –Loans and receivables (4,983) (63,392) 22,949 22,897Financial liabilities measuredat amortised cost (61,345) (41,067) (21,176) (19,493)(64,018) (105,229) 1,773 3,40428.3 Financial risk management objectives and policiesThe Group has exposure to the following risks from its use of financial instruments:• Credit risk• Liquidity risk• Foreign currency risk• Interest rate riskThe Group’s financial risk management objective is to optimise value creation for shareholders whilstminimising the potential adverse impact arising from its exposure to fluctuations in financial risks.28.4 Credit riskThe Group’s exposure to credit risk arises mainly from external counter-party risk on onerous projectcontracts and on monetary financial assets; whilst, at Company level mainly from internal counter-partyrisk on financial guarantees, loans and advances extended to its subsidiaries.The Group’s objective on credit risk management is to avoid significant exposure to any individualcounter party and to minimise concentration of credit risk. The Group achieves this through its operatingunits practices on credit and credit assessment, and performs central monitoring such as on credit riskconcentration, credit evaluation, and credit impairment; whilst, the business units are responsible for itsrespective day-to-day credit risk management.

104KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)28. Financial instruments (Cont’d)28.4 Credit risk (cont’d)Policies and ProcessesPolicies and processes in managing credit risk varies with the classes of counter-parties as outlinedbelow:Contract CustomersProcess & Specialised Equipment & Turnkey ContractsMost orders are treated as onerous construction contracts, where billings are based on the progressmilestones which typically are split into four or more stages of a project’s life cycle. Large order suchas EPC, billings are negotiated to closely mirror the cash flow requirements in contract execution.An advance from the customers would normally be required before the commencement of work, andsimilarly the customer would demand a Bank or Corporate Guarantee on its advancement made and/oras a form of guaranteeing performance. Customers’ orders are usually components of a larger projectwhich has secured financing. As such, credit risk exposure is typically low at the early and mid-stagesof a project life cycle, but increase towards the last milestone payment arising from possible variationor contractual disputes. This tail-end risk is managed or mitigated with one or more of the following:• Professional lien on goods and materials• Transactional credit documents (i.e. Letter of Credit) on export delivery• Contract customers are assessed on credit and sovereign nation risks where applicable on bothquantitative and qualitative elements.• Credit exposure is monitored on the aging of receivables, and the projects’ progression andvariations.Financial institutionsThe Group places its funds in Banks in over 19 countries in which it has business presence. The Groupalso enters into FOREX forward contracts with licensed financial institutions for hedging purposes.Credit risk is generally low as the counter parties are all reputable licensed institutions. Where financialderivatives are involved, mandatory ISDA agreements are incepted where necessary.Financial Guarantees and Advances for SubsidiariesThe Company through 2 (two) fully owned subsidiaries serves as central treasury to certain subsidiarieswithout external credit facilities by extending them loan, advances and banking trade facilities. Forthose subsidiaries with their own credit facilities, the Company is often required to provide corporateguarantee to the said banks extending such credit facilities. On the former, the Company enters intoformal agreement on pricing and repayment schedule, and continuously monitors the subsidiaries’performances, cash-flows and repayment. On the later, the Company continuously monitors thesubsidiaries’ performance and ability to service their credit obligations.The Group receives financial guarantees given by banks in managing exposure to credit risks. At theend of the reporting period, financial guarantees received by the Group amounted to RM28,863,000 (31December 2011: RM18,134,000; 1 January 2011: RM61,000) in respect of RM375,687,000 (31 December2011: RM334,700,000; 1 January 2011: RM254,689,000) trade receivables. The remaining balance oftrade receivables are not secured by any collateral or supported by any other credit enhancements.

KNM GROUP BERHAD I Annual Report 2012105Notes to the Financial Statements (cont’d)28. Financial instruments (Cont’d)28.4 Credit risk (cont’d)Credit risk exposures and concentrationThe Group’s credit risks are mainly on financial assets relating to receivables, cash deposits andinvestments as summarised in the table below for both the Group and Company level.Maximum exposure31.12.2012 31.12.2011 1.1.2011Group RM’000 RM’000 RM’000Financial assetsTrade receivable 375,687 334,700 254,689Amount due from contract customers 486,839 450,390 395,151Amount due from related parties,associates, and jointly-controlled entities 19,025 21,769 1,914Other receivable and deposit 27,674 40,601 26,445Other investment 14,183 14,088 3,620Derivative financial assets 8,682 20,584 16,331Deposit with licensed bank 8,888 65,061 79,135Deposit with financial institutions – 9,987 5,712Cash at bank balances 182,913 341,381 211,3901,123,891 1,298,561 994,387CompanyFinancial assetsAmount due from a subsidiary company 645,871 360,671 531,074Amount due from related parties,associates, and jointly-controlled entities 3,334 1,374 13Other receivable and deposit 17 3,302 2,987Deposit with financial institution – – 3,259Cash at bank balances 17,830 622 518667,052 365,969 537,851ReceivablesConcentration of Credit RiskThe credit risk concentration of the Group is mainly in the trade receivables and amount due from contractdebtors, and this is further analysed by its source of operation - geographic location.31.12.2012 31.12.2011 1.1.2011RM’000 % RM’000 % RM’000 %Asia & Oceania 355,075 41 361,324 46 235,982 36Europe 463,349 54 370,743 47 376,404 58Americas 44,102 5 53,023 7 37,454 6862,526 100 785,090 100 649,840 100

106KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)28. Financial instruments (Cont’d)28.4 Credit risk (cont’d)The Group uses aging analysis as the primary reporting tool to monitor the credit quality of the tradereceivables. Trade receivables past due 60 days are monitored more regularly on the collection efforts.The aging of trade receivables as at the end of the reporting period was:Gross Impairment NetGroup RM’000 RM’000 RM’00031 December 2012Not past due 209,973 – 209,973Past due 0 - 30 days 53,429 – 53,429Past due 31 - 60 days 21,874 – 21,874Past due 61 - 120 days 36,080 – 36,080Past due more than 120 days 102,934 (48,603) 54,331424,290 (48,603) 375,68731 December 2011Not past due 234,830 – 234,830Past due 0 - 30 days 66,496 – 66,496Past due 31 - 60 days 6,834 – 6,834Past due 61 - 120 days 9,566 – 9,566Past due more than 120 days 66,569 (49,595) 16,974384,295 (49,595) 334,7001 January 2011Not past due 108,866 – 108,866Past due 0 - 30 days 92,346 – 92,346Past due 31 - 60 days 27,764 – 27,764Past due 61 - 120 days 13,349 (1,042) 12,307Past due more than 120 days 58,157 (44,751) 13,406300,482 (45,793) 254,689The allowance account in respect of trade receivables is used to record impairment losses where theGroup is doubtful of the collection. Doubtful amount will be written off against the allowance account ifrecovery channels are exhausted.

KNM GROUP BERHAD I Annual Report 2012107Notes to the Financial Statements (cont’d)28. Financial instruments (Cont’d)28.4 Credit risk (cont’d)The movements in the allowance for impairment losses of trade receivables during the financial yearwere:Group2012 2011RM’000 RM’000At 1 January 49,595 45,793Impairment loss recognised 6,784 12,829Impairment loss reversed (5,561) (9,548)Impairment loss written off (398) –Effect on the movement of exchange rate (1,817) 521At 31 December 48,603 49,59528.5 Liquidity riskThe Group’s exposure to liquidity risk primarily arises from its capabilities to meet its financial obligations,principally its trade payables, loans and borrowings, as and when it falls due. The Group’s liquidity riskmanagement objective is to ensure that all foreseeable funding commitments can be met as and whendue in a cost-effective manner.Policies and ProcessesThe Group leverages on the Company as the public listed parent company to support 2 (two) of itsfully owned subsidiaries to play a central treasury and liquidity management role to better manage itsweighted-average-cost-of funds, whilst day-to-day operational liquidity needs are decentralised at theBusiness Unit level. Foreign Business Units are encouraged to seek localised trade financing facilitiesin their respective currencies where appropriate.The Group actively manages its operating cash-flows and the availability of funding so as to ensure alloperating, investing and financing needs are met. It manages liquidity risks with a combination of thefollowing policies and methods:• Maintain a diversified range of funding sources with adequate back-up facilities• Maintain debt financing and servicing plan• Maintain medium to long term cash-flow planning incorporating funding positions and requirementsof all its subsidiaries• Monitor balance sheet liquidity ratios against internal threshold• Manage working capital and optimize cash conversion cycle• Manage maturity profile of both financial and non-financial liabilities

108KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)28. Financial instruments (Cont’d)28.5 Liquidity risk (cont’d)Liquidity RiskThe table below set out the contractual maturity profile of the Group and the Company’s financial liabilitiesat the end of the reporting period based on undiscounted contractual payment – which would be met witha combination of matching maturity financial assets, operational cash inflows, and roll-over of currentliabilities such as trade facilities.Maturity analysisGroupContractualinterest/MoreCarrying profit rates Contractual Less than 1 - 2 2 - 5 than31 December 2012 amount per annum cash flows 1 year years years 5 yearsRM’000 % RM’000 RM’000 RM’000 RM’000 RM’000Non-derivative financial liabilitiesCP/MTN 95,000 5.30-6.00 100,457 100,457 – – –Term loans – secured- Euro 34,663 2.81-5.50 40,787 5,500 5,363 15,117 14,807- RM 344,368 5.70-6.00 371,680 321,853 13,513 36,314 –Term loans – unsecured- RMB 11,337 7.00-7.56 12,160 12,160 – – –- CAD 17,506 2.25 17,900 8,538 9,362 – –- Euro 85,893 1.40-5.00 89,836 88,629 402 805 –- BRL 2,914 23.59 3,601 3,601 – – –Revolving credit – unsecured- RM 90,500 4.47-6.00 92,215 92,215 – – –Bill payables – unsecured- USD 181,650 1.27-4.12 181,650 181,650 – – –- Euro 31,729 1.23-3.30 31,729 31,729 – – –- RM 6,967 3.78-6.25 6,967 6,967 – – –Hire purchase and lease creditors 27,438 1.88-19.42 30,861 7,910 7,105 13,439 2,407Bank overdraft- BRL 1 14.52-17.58 1 1 – – –- RM 4,481 7.35-17.58 4,810 4,810 – – –- AUD 1,988 11.70 1,988 1,988 – – –Trade and other payables 598,229 598,229 598,229 – – –1,534,664 1,584,871 1,466,237 35,745 65,675 17,214Derivative financial liabilitiesForward exchange contracts(gross settled):Outflow – 554,066 554,066 – – –Inflow (362) (554,428) (554,428) – – –Interest rate swap (gross settled):Outflow 31 2,040 2,040 – – –Inflow – (2,009) (2,009) – – –1,534,333 1,584,540 1,465,906 35,745 65,675 17,214CompanyNon-derivative financial liabilitiesTerm loans – secured- RM 301,140 5.70-5.71 321,853 321,853 – – –Trade and other payables 525,735 – 525,735 41,794 – 483,941 –Derivative financial liabilitiesInterest rate swap (gross settled):Outflow 31 2,040 2,040 – – –Inflow – (2,009) (2,009) – – –826,906 847,619 363,678 – 483,941 –

KNM GROUP BERHAD I Annual Report 2012109Notes to the Financial Statements (cont’d)28. Financial instruments (Cont’d)28.5 Liquidity risk (cont’d)Maturity analysis (cont’d)GroupContractualinterest/MoreCarrying profit rates Contractual Less than 1 - 2 2 - 5 than31 December 2011 amount per annum cash flows 1 year years years 5 yearsRM’000 % RM’000 RM’000 RM’000 RM’000 RM’000Non-derivative financial liabilitiesCP/MTN 190,000 3.80-5.80 198,554 150,513 48,041 – –Term loans – secured- Euro 39,283 2.81-5.50 52,498 5,712 5,672 19,891 21,223- RM 351,330 5.31-5.71 389,948 117,504 113,276 159,168 –Term loans – unsecured- RMB 6,044 7.40 6,492 4,328 2,164 – –- CAD 25,538 2.10-2.25 26,094 7,984 7,984 10,126 –- Euro 12,173 1.17-3.10 12,790 11,153 409 1,228 –- BRL 2,424 12.68-23.59 2,525 2,525 – – –- USD 3,249 5.00 3,412 3,412 – – –Revolving credit – unsecured- Euro 112,816 2.70-4.20 114,281 114,281 – – –- RM 158,000 3.40-5.00 159,009 159,009 – – –Bill payables – unsecured- USD 164,712 0.83-1.85 166,056 166,056 – – –- Euro 15,239 0.85-2.00 15,410 15,410 – – –- RM 27,112 3.27-3.71 27,112 27,112 – – –Hire purchase and lease creditors 19,102 4.22-19.42 21,695 6,397 4,365 7,441 3,492Bank overdraft- BRL 17,262 14.52-24.60 19,969 19,969 – – –Trade and other payables 517,512 517,512 496,810 20,702 – –1,661,796 1,733,357 1,308,175 202,613 197,854 24,715Derivative financial liabilitiesForward exchange contracts (gross settled):Outflow 686 699,021 699,021 – – –Inflow – (698,335) (698,335) – – –Interest rate swap (gross settled):Outflow 475 25,086 25,086 – – –Inflow – (24,611) (24,611) – – –1,662,957 1,734,518 1,309,336 202,613 197,854 24,715CompanyNon-derivative financial liabilitiesTerm loans – secured- RM 351,330 5.31-5.71 389,948 117,504 113,276 159,168 –Trade and other payables 348,026 348,026 348,026 – – –Derivative financial liabilitiesInterest rate swap (gross settled):Outflow 475 25,086 25,086 – – –Inflow – (24,611) (24,611) – – –699,831 738,449 466,005 113,276 159,168 –

110KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)28. Financial instruments (Cont’d)28.5 Liquidity risk (cont’d)Maturity analysis (cont’d)GroupContractualinterest/MoreCarrying profit rates Contractual Less than 1 - 2 2 - 5 than1 January 2011 amount per annum cash flows 1 year years years 5 yearsRM’000 % RM’000 RM’000 RM’000 RM’000 RM’000Non-derivative financial liabilitiesCP/MTN 265,000 3.75-5.80 273,251 209,550 18,048 45,653 –Term loans – secured- BRL 4,167 12.68 4,842 3,228 1,614 – –- Euro 45,794 2.54-5.55 57,818 8,224 5,641 16,583 27,370- RM 351,330 5.26-5.31 392,938 122,000 112,373 158,565 –Term loans – unsecured- RMB 9,360 6.46 10,268 4,290 4,046 1,932 –- CAD 33,093 1.35-2.15 33,804 33,804 – – –- Euro 22,702 1.09-3.10 23,863 11,116 11,116 1,223 408- USD 5,076 5.00 5,166 5,166 – -– –Revolving credit – unsecured- Euro 71,552 2.19 72,279 72,279 – – –- RM 138,000 3.40-4.18 138,435 138,435 – – –Bill payables – unsecured- USD 51,225 0.83-3.71 51,672 51,672 – – –- RM 22,556 0.83-3.71 22,713 22,713 – – –Hire purchase and lease creditors 19,741 9.48-23.14 22,692 7,369 3,628 6,599 5,096Bank overdraft- USD 245 - 245 245 - - -- BRL 5,293 13.89-26.82 5,293 5,293 - - -Trade and other payables 405,486 405,486 379,934 25,552 - -1,450,620 1,520,765 1,075,318 182,018 230,555 32,874Derivative financial liabilitiesForward exchange contracts(gross settled):Outflow – 527,570 527,570 – – –Inflow (6,689) (534,259) (534,259) – – –1,443,931 1,514,076 1,068,629 182,018 230,555 32,874Company1 January 2011Non-derivative financial liabilitiesTerm loans – secured- RM 351,330 5.26-5.31 392,938 122,000 112,373 158,565 –Trade and other payables 3,653 3,653 3,653 – – –354,983 396,591 125,653 112,373 158,565 –

KNM GROUP BERHAD I Annual Report 2012111Notes to the Financial Statements (cont’d)28. Financial instruments (Cont’d)28.6 Foreign currency riskThe Group operates in 20 countries and is exposed to various currencies that gives rise to foreignexchange (FX) risk from the translation of its foreign investments and from FX transactions on its salesand purchases denominated in foreign currency. The Group’s main foreign currency exposure is inUSD and EUR and MYR. MYR exposure is attributed to certain of the Company’s subsidiaries locatedin Malaysia but adopting their functional currency in USD and EUR respectively. The Group’s foreigncurrency risk management objective is to minimise transactional FOREX exposure that gives rise toeconomic impact.Policies and Processesi) Transactional forward obligations or rights denominated in foreign currency.Transactional FX risk arises mainly from contracted projects’ future monetary obligation and rightsdenominated in currency other than the transaction originating currency. These highly probablefuture cash flows in foreign currency are first netted based on matching FX risk characteristics fornatural hedge, with any net balance exposure being further hedge off with FX Forward Contracts.It is the Group’s policy to attain best full hedge in transactional FX risk.ii)Net investment in Foreign Operations.The Group does consider matching foreign currency borrowing with the functional currency of itsforeign operations in mitigating FX translation gain/loss that are recognised in a separate componentof equity. However, this decision is driven by feasibility factors such as the ability to time the futurecash flows, availability of foreign currency debt funding, and the foreign currencies’ fiscal positionand borrowing cost.Where circumstances permit, FX hedges on the abovementioned would be designated for hedgeaccounting either as cash-flow hedges, fair value hedges, or net-investment hedges.The table below sets out the Group’s significant financial assets’ and liabilities’ FX exposure based onthe notional or contractual amount for USD, Euro and MYR.Denominated inGroup USD Euro RM31 December 2012 RM’000 RM’000 RM’000Trade receivables 23,929 28,259 2,230Cash at bank balances 542 1,927 5,631Trade payables (15,386) (15,228) (34,154)Other payables and accruals (58) – (20,181)Bill Payables (51,583) (26,839) (9,736)Forward exchange contracts 42 (739) (11)Net exposure in the statement offinancial position (42,514) (12,620) (56,221)31 December 2011Trade receivables 21,887 23,409 2,725Cash at bank balances 11,608 13,987 10,182Trade payables (3,399) (1,459) (27,759)Other payables and accruals (535) – (378)Bill Payables (46,767) (14,802) (26,459)Forward exchange contracts 6,317 (15,880) (764)Net exposure in the statement offinancial position (10,889) 5,255 (42,453)

112KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)28. Financial instruments (Cont’d)28.6 Foreign currency risk (cont’d)Denominated inGroup USD Euro RM1 January 2011 RM’000 RM’000 RM’000Trade receivables 12,779 6,170 15,289Deposit with licensed bank 12,649 – –Cash at bank balances 4,945 12,259 2,061Trade payables (4,101) (7,692) (6,423)Other payables and accruals (856) (1,122) (4,134)Bill Payables (15,674) (2,838) (1,391)Forward exchange contracts (6,295) 64 –Net exposure in the statement offinancial position 3,447 6,841 5,402Currency risk sensitivity analysisForeign currency risk mainly arises from Group entities which have US Dollar and Euro functionalcurrency. The exposure to currency risk of Group entities which do not have a US Dollar and Eurofunctional currency is not material and hence, sensitivity analysis is not presented.A 5 percent strengthening of Malaysian Ringgit against the US Dollar and Euro at the end of the reportingperiod would have increased equity and post-tax profit or loss by the amounts shown below. This analysisassumes that all other variables, in particular interest rates, remain constant.EquityProfit or loss2012 2011 2012 2011RM’000 RM’000 RM’000 RM’000USD 21,862 22,353 (1,594) (408)EURO 55,312 53,746 (473) 197RM – – (2,108) (1,592)A 5 percent weakening of Malaysian Ringgit against the US Dollar and Euro at the end of the reportingperiod would have had equal but opposite effect on the above currencies to the amounts shown above,on the basis that all other variables remained constant.28.7 Interest rate riskThe Group’s interest rate risk arises from its interest bearing financial instruments that could impact fairvalue and future cash-flows due to fluctuation in market interest rates. The Group’s objective on interestrate risk management is to achieve a balance in re-pricing risk and the optimisation of pricing whilstensuring sufficient liquidity to meet funding needs.Policies and ProcessesInterest bearing financial assets are mainly temporary surpluses or funds held for liquidity purposes andare placed on short-term or on demand basis. Interest bearing financial liabilities are mixture of shortterm trade/ credit facilities with re-pricing exposure, and long-term loans with fixed pricing. The Groupconstantly reviews its portfolio of interest bearing financial liabilities with the view to mitigate as muchas possible its re-pricing risk taking into account the nature and requirement of its businesses, andavailability from issuers of such financial liabilities.

KNM GROUP BERHAD I Annual Report 2012113Notes to the Financial Statements (cont’d)28. Financial instruments (Cont’d)28.7 Interest rate risk (cont’d)Exposure to interest rate riskThe interest rate profile of the Group’s and the Company’s significant interest-bearing financial instruments,based on carrying amounts as at the end of the reporting period was:GroupCompany31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011RM’000 RM’000 RM’000 RM’000 RM’000 RM’000Fixed rate instrumentsFinancial assets 8,888 75,048 84,847 – – 3,259Financial liabilities (283,980) (337,552) (260,561) – – –(275,092) (262,504) (175,714) – – 3,259Floating rate instrumentsFinancial assets – – – 301,140 351,330 351,330Financial liabilities (652,455) (806,732) (784,573) (301,140) (351,330) (351,330)(652,455) (806,732) (784,573) – – –Interest rate risk sensitivity analysis(a)Fair value sensitivity analysis for fixed rate instrumentsThe Group does not account for any fixed rate financial assets and liabilities at fair value throughprofit or loss. Therefore, a change in interest rates at the end of the reporting period would notaffect profit or loss.(b)Cash flow sensitivity analysis for variable rate instrumentsA change of 25 basis points (bp) in interest rates at the end of the reporting period would haveincreased (decreased) equity and post-tax profit or loss by the amounts shown below. This analysisassumes that all other variables, in particular foreign currency rates, remain constant.Profit or loss25 bp 25 bpincrease decreaseGroup RM’000 RM’0002012Floating rate instruments 1,054 (1,054)Interest rate swap 23 (23)Cash Flow sensitivity (net) 1,077 (1,077)2011Floating rate instruments 1,513 (1,513)Interest rate swap 343 (343)Cash Flow sensitivity (net) 1,856 (1,856)

114KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)28. Financial instruments (Cont’d)28.8 Cash flow hedgeThe Group entered into forward cash flow hedge of its expected proceeds/ payments from/to accountsreceivables and accounts payables.The following depicts the expected cash flow streams associated with the hedges undertaken and periodaffecting profit or loss:ExpectedCarrying cash Under 1 – 2Group amount flows 1 year yearsRM’000 RM’000 RM’000 RM’0002012Proceeds from accountsreceivables 171,480 172,237 151,663 20,5742011Proceeds from accountsreceivables 105,498 112,129 104,873 7,256During the year, net loss of RM1,815,627 (2011: RM5,039,942) was recognised in the other comprehensiveincome. An ineffective net gain of RM2,910,336 (2011: RM718,996) was recognised in profit or lossduring the year.28.9 Fair value of financial instrumentsThe carrying amounts of cash and cash equivalents, trade and other receivables, trade and otherpayables, and short-term borrowings approximate their fair value due to the relatively short term natureof these financial instruments.The carrying amounts of the floating rate term loans and amount due from subsidiary approximate fairvalues as they are subject to variable interest rates which in turn approximate the current market interestrates for similar loans at the end of the reporting period.It was not practical to estimate the fair value of the Group’s investment in unquoted shares due to thelack of comparable quoted market prices, inability to estimate fair value without incurring excessive costsand immaterial in the opinion of the Management.The carrying amount and fair value of financial assets and liabilities, other than mentioned above areshown as follow:-31.12.2012 31.12.2011 1.1.2011Carrying Fair Carrying Fair Carrying Fairamount value amount value amount valueGroup RM’000 RM’000 RM’000 RM’000 RM’000 RM’000Fixed rate term loan- unsecured 4,444 4,449 5,166 5,170 11,502 11,625Interest rate swaps- Liabilities (31) (31) (475) (475) – –Forward exchange contracts:- Assets 8,682 8,682 20,584 20,584 16,331 16,331- Liabilities (6,340) (6,340) (21,354) (21,354) (9,640) (9,640)Finance lease liabilities - Fixed rate (7,720) (7,800) (8,061) (8,083) (8,397) (8,397)

KNM GROUP BERHAD I Annual Report 2012115Notes to the Financial Statements (cont’d)28. Financial instruments (Cont’d)28.9 Fair value of financial instruments (cont’d)31.12.2012 31.12.2011 1.1.2011Carrying Fair Carrying Fair Carrying Fairamount value amount value amount valueCompany RM’000 RM’000 RM’000 RM’000 RM’000 RM’000Interest rate swaps- Liabilities (31) (31) (475) (475) – –The following summarises the method used in determining the fair value of financial instruments reflectedin the above tables.DerivativesThe fair value of forward exchange contracts and interest rate swaps is assessed using the quotedmarket price obtained from Reuters/license financial institutions.Non-derivative financial liabilitiesFair value which is determined for disclosure purposes, is calculated based on the present value of futureprincipal and interest cash flows, discounted at the market rate of interest at the end of the reportingperiod.Interest rates used to determine fair value31.12.2012 31.12.2011 1.1.2011Fixed rate term loans 3.1% - 23.59% 3.10% - 5.00% 3.10%-12.68%Finance lease liabilities- Fixed rate 1.88% - 19.42% 4.90% - 19.42% 4.90%-23.14%28.10 Fair value hierarchyThe table below analyses financial instruments carried at fair value, by valuation method. The differentlevels have been defined as follows:• Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.• Level 2: Inputs other than quoted prices included within Level 1 that are observable for the assetor liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).• Level 3: Inputs for the asset or liability that are not based on observable market data (unobservableinputs).Group Level 1 Level 2 Level 3 TotalRM’000 RM’000 RM’000 RM’00031 December 2012Financial assetsAvailable-for-sale – 70 – 70Forward exchange contracts – 8,682 – 8,682– 8,752 – 8,752Financial liabilitiesForward exchange contracts – (6,340) – (6,340)Interest rate swap – (31) – (31)– (6,371) – (6,371)

116KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)28. Financial instruments (Cont’d)28.10 Fair value hierarchy (cont’d)Group Level 1 Level 2 Level 3 TotalRM’000 RM’000 RM’000 RM’00031 December 2011Financial assetsAvailable-for-sale – 100 – 100Forward exchange contracts – 20,584 – 20,584– 20,684 – 20,684Financial liabilitiesForward exchange contracts – (20,879) – (20,879)Interest rate swap – (475) – (475)– (21,354) – (21,354)1 January 2011Financial assetsForward exchange contracts – 16,331 – 16,331Financial liabilitiesForward exchange contracts – (9,640) – (9,640)Company Level 1 Level 2 Level 3 TotalRM’000 RM’000 RM’000 RM’00031 December 2012Financial liabilitiesInterest rate swap – (31) – (31)31 December 2011Financial liabilitiesInterest rate swap – (475) – (475)1 January 2011Financial liabilitiesInterest rate swap – – – –29. Capital managementThe Group’s capital management objective is to ensure a strong and sustainable capital base that can supportthe current and future business needs of the Group.In support of that, the Group aims to manage within limit of existing debt-equity ratio (DER) covenant.As at 31 December 2012, the Group recorded a DER at 0.51 (2011: 0.71) as compared to the financialcovenants of not exceeding 1.75 times. The Group is also required to maintain certain financial covenant ratiosas disclosed in Note 16 to the financial statements.

KNM GROUP BERHAD I Annual Report 2012117Notes to the Financial Statements (cont’d)30. Operating segmentThe Group’s resources allocation is assessed on a quarterly basis or as needed basis in accordance to thebusiness performance and requirements of the respective geographical’s operating unit as reviewed anddetermined by the Group’s Chief Operating Decision Maker (CODM) whom is also the Chief Executive Officerof the Group. Hence, segment information is presented by geographical locations that the Group operatesin. The format of the geographical segments is based on the Group’s operation management and internalreporting structure. Inter-segment pricing is determined based on negotiated terms.Reporting on segmental profit, assets and liabilities include items directly attributable to geographical segments.Segment capital expenditure is the total cost incurred during the period to acquire segment assets that areexpected to be used for more than one period.The segments are classified into geographical presence as follows:Geographical segmentAsia & OceaniaEuropeAmericaCountriesMalaysia, China, India, Singapore, Brunei Darussalam, Indonesia, SouthAfrica, Australia and UzbekistanBritish Virgin Islands, United Arab Emirates, Netherlands, Saudi Arabia,Italy, United Kingdom and GermanyBrazil, United States of America and CanadaGeographical segmentsAsia and Oceania Europe America Consolidated2012 2011 2012 2011 2012 2011 2012 2011RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000Revenue 926,040 539,683 1,374,330 1,357,592 77,160 66,503 2,377,530 1,963,778Cost of sales (774,264) (546,520) (1,125,365) (1,121,877) (70,519) (108,215) (1,970,148) (1,776,612)Gross profit/(loss) 151,776 (6,837) 248,965 235,715 6,641 (41,712) 407,382 187,166Administration expensesand others (119,589) (84,805) (139,780) (177,178) (40,672) (32,027) (300,041) (294,010)Operating profit/(loss) 32,187 (91,642) 109,185 58,537 (34,031) (73,739) 107,341 (106,844)Add: Depreciation andamortisation 22,114 21,564 64,796 64,147 8,469 8,519 95,379 94,230Segment profit/(loss) 54,301 (70,078) 173,981 122,684 (25,562) (65,220) 202,720 (12,614)Impairment of goodwill – – –- – (29,557) – (29,557) –Share of loss ofequity-accountedinvestees, net of tax (144) (480)Less:Depreciation andamortisation (95,379) (94,230)77,640 (107,324)Financing costs (60,362) (52,190)Interest income 3,758 3,632Profit/(Loss) before tax 21,036 (155,882)

118KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)30. Operating segment (Cont’d)Geographical segmentsAsia and Oceania Europe America Consolidated31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000Segment assets 1,189,560 1,247,258 933,464 2,541,343 2,505,734 2,370,741 123,252 185,243 226,313 3,854,155 3,938,235 3,530,518Segment liabilities 1,275,091 1,478,393 1,046,675 643,945 706,768 611,211 98,173 136,428 137,293 2,017,209 2,321,589 1,795,179Asia and Oceania Europe America Consolidated2012 2011 2012 2011 2012 2011 2012 2011RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000Capital expenditure 14,741 28,780 57,016 28,617 2,328 4,727 74,085 62,124Depreciation charged toincome statements 9,330 7,993 2,092 2,473 173 183 11,595 10,649Non-cash (income)/expenses other thandepreciation (9,859) 42,662 18,805 45,388 (10,995) 11,350 (2,049) 99,40031. SubsidiariesThe principal activities of the subsidiaries, their places of incorporation and the interests of KNM Group Berhadare as follows:EffectiveCountry of OwnershipName of Subsidiary Principal Activities Incorporation Interest31.12.2012 31.12.2011 1.1.2011% % %Subsidiaries of the CompanyKNM Process Systems Design, manufacture, assembly Malaysia 100 100 100Sdn. Bhd.and commissioning of processequipment, pressure vessels,heat exchangers, skid mountedassemblies, process pipe systems,storage tanks, specialised structuralassemblies and module assembliesfor the oil, gas and petrochemicalindustries.KNM International Provision of management, technical Malaysia 100 100 100Sdn. Bhd. @advisory, licence and trademarkservices to international relatedcompanies and related internationalinvestments.KNM Capital Sdn. Bhd. @ Provision of funding and treasury Malaysia 100 100 100services and all related functions.

KNM GROUP BERHAD I Annual Report 2012119Notes to the Financial Statements (cont’d)31. Subsidiaries (Cont’d)EffectiveCountry of OwnershipName of Subsidiary Principal Activities Incorporation Interest31.12.2012 31.12.2011 1.1.2011% % %KNM Management Services Provision of qualifying services Malaysia 100 100 100Sdn. Bhd.under the overseas head quarters(OHQ) concept which Includesmanagement, treasury, financialadvisory, technical support, marketing,business development andprocurement and all related functions.KNM Renewable Energy Provision of project management, Malaysia 100 100 100Sdn. Bhd.@project business development andtechnical services.KNM Capital Labuan Limited Provision of funding and treasury Labuan 100 100 100services and all related functions.KNM Services (Singapore) Dormant. Singapore 100 100 100Pte. Ltd. ^KNM China Pte Limited ^ Investment holding. Hong Kong 100 100 100Litwin Asia Pacific Sdn. Bhd. Investment holding. Malaysia 51 51 51KNM Eurasia Sdn. Bhd. @ Investment holding. Malaysia 100 100 100Subsidiaries ofKNM Eurasia Sdn BhdKNM Process Systems Dormant. Malaysia 100 100 100(Kazakhstan) Sdn. Bhd. @KNM Process Systems Dormant. Malaysia 100 100 100(Uzbekistan)Sdn. Bhd. @KNM Process Systems Dormant. Malaysia 100 100 100(Turkmenistan)Sdn. Bhd. @Subsidiaries ofKNM Process SystemsSdn. Bhd.KNM OGPET (East Coast) Design, manufacture, assembly and Malaysia 100 100 100Sdn. Bhd. @commissioning of process equipment,pressure vessels, heat exchangers,skid mounted assemblies, processpipe systems, storage tanks,specialised structural assemblies andmodule assemblies for the oil, gasand petrochemical industries.

120KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)31. Subsidiaries (Cont’d)EffectiveCountry of OwnershipName of Subsidiary Principal Activities Incorporation Interest31.12.2012 31.12.2011 1.1.2011% % %Subsidiaries ofKNM Process SystemsSdn. Bhd. (cont’d)Duraton Engineering Provision of project manpower, Malaysia 100 100 100Sdn. Bhd.engineering, non-destructivetesting and technical consultancyservices.Perwira Awan Sdn. Bhd. Property investment. Malaysia 100 100 100KNM Technical Services Provision of technical services Malaysia 100 100 100Sdn. Bhd.and other associated servicesrelated to the oil, gas andpetrochemical industries.Sumber Amantech Provision of project management Malaysia 100 100 100Sdn. Bhd.and technical services.KNM Exotic Equipment Design, manufacture, assembly and Malaysia 100 100 100Sdn. Bhd. @commissioning of process equipment,pressure vessels, heat exchangers,skid mounted assemblies, processpipe systems, storage tanks,specialised structural assemblies andmodule assemblies for the oil, gasand petrochemical industries.KNM Europa BV * Investment holding. Netherlands 100 100 100KNM Pty. Ltd. *@ Design, manufacture, sale and Australia 100 100 100service of heat exchange systems.Borsig Boiler Systems Dormant. Malaysia 100 100 100Sdn. Bhd. @Borsig Industrial Services Dormant. Malaysia 100 100 100Sdn. Bhd.Deutsche KNM GmbH * Investment holding. Germany 100 100 100KNM Sistemas de Investment holding. Brazil 100 100 100Processamento do BrasilLtda *@KNM OGPET (Sabah) Dormant. Malaysia 80 80 –Sdn. Bhd. ^KNM-DP Fabricators Dormant. Malaysia 86 86 28Sdn. Bhd. **

KNM GROUP BERHAD I Annual Report 2012121Notes to the Financial Statements (cont’d)31. Subsidiaries (Cont’d)EffectiveCountry of OwnershipName of Subsidiary Principal Activities Incorporation Interest31.12.2012 31.12.2011 1.1.2011% % %Subsidiary ofKNM-DP FabricatorsSdn. Bhd.KNM-DP Harta Bina Dormant. Malaysia 93 93 65Sdn. Bhd. **Subsidiaries ofKNM China Pte LimitedBORSIG Compression Dormant. Hong Kong 100 100 100(China)Pte Limited ^BORSIG Valves (China) Dormant. Hong Kong 100 100 100Pte Limited ^Subsidiaries ofKNM Europa BVFBM Hudson Italiana SpA * Design and manufacture of air-cooled Italy 100 100 100heat exchangers, specialty shell andtube heat exchangers and processgas waste heat boilers for the oil, gas,petrochemical and desalinationindustries.FBM ICOSS S.r.l * Design and construction of fully Italy 100 100 100welded plate type heat exchangerplates, bundle exchangers andjacketed pressure vessels fordifferent fields such as chemical,petrochemical, textile pharmaceutical,food industry, aerospace andresearch industries.KNM Corporation * Investment holding. Canada 100 100 100KNM Project Services Project management and services United 100 100 –Limited ^ and provision of process technology Kingdomfor oil and gas, biomass, biofuels,waste to energy and power plants aswell as provision of turnkey servicesincluding operation and maintenanceservices.KNM Technical Services Dormant. Uzbekistan 100 – –LLC ^

122KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)31. Subsidiaries (Cont’d)EffectiveCountry of OwnershipName of Subsidiary Principal Activities Incorporation Interest31.12.2012 31.12.2011 1.1.2011% % %Subsidiaries ofKNM CorporationKNM Process Equipment Design, manufacture, procurement Canada 100 100 100Inc *and manufacturing of processequipment, including without limitationpressure vessels, reactors, columnand towers, drums, heat exchangers,air fin coolers, process gas wasteheat boilers, specialised shell,tube heat exchangers, condensers,spheres, process tanks, moundedbullets, process skid packages andturnkey storage facilities for the oil,gas,petrochemicals and mineralprocessing industries in Canada andthe North America region.KNM Industries Inc * An asset holding company and shall Canada 100 100 100own the land, manufacturing plantand machinery inrelation to theGroup's manufacturing facilityin Edmonton, Alberta, Canada.KPS Inc * Investment holding. Canada 100 100 100Subsidiary ofKPS IncKPS Technology & Provision of sulphur removal and United 60 60 65Engineering LLC * recovery related services to clients States ofin the oil, gas and energy/power Americaindustries in relation to sulphurremoval and recovery technology.Subsidiaries of KNMPty LtdW E Smith Engineering Thermal and mechanical design, Australia 100 100 100Pty Ltd *@drafting, manufacture of shell andtube heat exchangers, vessels,columns and feed water heaters.HEA Australia Pty Ltd *@ Manufacture of air-cooled, shell, Australia 100 100 100and tube and plate heat exchangers,vessels and columns.PT Heat Exchangers Manufacture of air-cooled, shells, Indonesia 100 100 100Indonesia *@tube plates, frame heat exchangers,vessels and columns.

KNM GROUP BERHAD I Annual Report 2012123Notes to the Financial Statements (cont’d)31. Subsidiaries (Cont’d)EffectiveCountry of OwnershipName of Subsidiary Principal Activities Incorporation Interest31.12.2012 31.12.2011 1.1.2011% % %KMK Power Sdn. Bhd. @ Investment holding. Malaysia 100 100 100Subsidiary ofDeutsche KNM GmbHBORSIG Beteiligungs Investment holding. Germany 100 100 100verwaltungsgesellschaftmbH *Subsidiary of BORSIGBeteiligungsverwaltungsgesellschaftmbHBORSIG GmbH * Advisory and administration Germany 100 100 100services as well as acquisition ofand holding shares in othercompanies on behalf and for its ownaccount, in particular for and tocompanies of the BORSIG Group.Subsidiaries ofBORSIG GmbHBORSIG Process Heat Processing, planning, fabrication and Germany 100 100 100Exchanger GmbH * distribution of and the trading withmachines, assets, apparatuses andmiscellaneous components,particularly for generating plant ,petrochemical and chemicalindustries.BORSIG ZM Compression System engineering, industrial Germany 100 100 100GmbH *fabrication, assembly services aswell as the sale of machines andconstructions of compressors,containers, silo and conveyortechnique.BORSIG Membrane Processing, planning, fabrication and Germany 100 100 100Technology GmbH * distribution of and trading withmachines and construction ofapparatuses and miscellaneouscomponents in the field of membranetechnique.BORSIG Service GmbH * Provides installation, maintenance Germany 100 100 100and other industrial services ofmachines and construction ofapparatuses and other components.

124KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)31. Subsidiaries (Cont’d)EffectiveCountry of OwnershipName of Subsidiary Principal Activities Incorporation Interest31.12.2012 31.12.2011 1.1.2011% % %Subsidiaries ofBORSIG GmbH(cont’d)BORSIG Boiler Systems Planning, delivery, installation, and Germany 100 100 100GmbH *implementation of constructions forgenerating plants as well as provisionof maintenance and other servicesfor such constructions.Subsidiary of BORSIGMembrane TechnologyGmbHGMT Membrantechnik Development, processing and Germany 51 51 51GmbH *distribution of membranes,membrane modules and membranecomponents.Subsidiary ofBORSIG ZMCompression GmbHBORSIG Compressor Parts Development, production and Germany 100 100 100GmbH *distribution of valves, compressorparts, monitoring systems forcompressors, provision ofmaintenance and repair works ofcompressors and other assets.Subsidiaries ofKNM Sistemas deProcessamento do BrasilLtdaKNM Industrial Ltda *@ Design, fabrication, assembly and Brazil 100 100 100erection of tanks, spheres, storagesystems, structural systems, pipingand ducting systems for oil, gas andindustrial plants.KNM Servicos Ltda *@ Provision of construction, Brazil 100 100 100management services, mechanicalassembly and erection works,electrical, instrumentation works andmaintenance services for oil, gas andindustrial plants.KNM Equipamentos SA *@ Design, manufacture and Brazil 100 100 100commissioning of processequipment, boilers, transport, andother industrial equipment for oil, gasand industrial plants.

KNM GROUP BERHAD I Annual Report 2012125Notes to the Financial Statements (cont’d)31. Subsidiaries (Cont’d)EffectiveCountry of OwnershipName of Subsidiary Principal Activities Incorporation Interest31.12.2012 31.12.2011 1.1.2011% % %Subsidiaries ofKNM InternationalSdn. Bhd.KNM Overseas (China) Investment holding. Malaysia 100 100 100Sdn. Bhd. @KNM Global Ltd. Provision of management, British 100 100 100procurement, businessVirgindevelopment, technical advisory Islandsand marketing services.KNM Oil & Gas (B) Dormant. Brunei 100 100 100Sdn. Bhd. *DarussalamKNM Engineering Services Design, engineering, technical and India 100 100 100Private Limited **project management services inrelation to process equipment,plant facilities and general facilitiesfor the oil, gas, petrochemicals,minerals processing and generalindustries.The Company has ceasedoperations.PT KPE Industries ^ An assets holding company and Indonesia 100 100 100shall own the land, manufacturingplant and machinery in relationto the Group’s intendedManufacturing facility at the KabilIndustrial Estate in Batam, Indonesia.Saudi KNM Ltd. ^ Production of platforms, towers, Saudi 51 51 51columns, pressure pipe, large Arabiabarrels, boilers, thermal transformers,large tanks and cooling fans.Subsidiary of KNMOverseas (China)Sdn. Bhd.KNM Special Process Design, manufacture, assembly, China 100 100 100Equipment (Changshu) commissioning and maintenance ofCo. Ltd. **process equipment, pressure vessels,heat exchangers, skid mountedassemblies, process pipe systems,storage tanks, specialised structuralassemblies and module assembliesfor the oil, gas and petrochemicalindustries within the China market.

126KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)31. Subsidiaries (Cont’d)EffectiveCountry of OwnershipName of Subsidiary Principal Activities Incorporation Interest31.12.2012 31.12.2011 1.1.2011% % %Subsidiary of KNMInternational Sdn. Bhd.FBM - KNM FZCO *@ Design and manufacture of United 100 100 100air-cooled heat exchangers,Arabspecialty shell and tube heat Emiratesexchangers and process gas wasteheat boilers for the oil, gas,petrochemical and desalinationindustries.Subsidiary of KNMRenewable EnergySdn. Bhd.KNM-CIW Sdn. Bhd. Dormant. Malaysia 100 100 100Subsidiary of KMKPower Sdn. Bhd.Poplar Investments Limited ^ Property investment. Isle of 100 – –ManSubsidiary of KNM ProjectServices LimitedEnergy Park Investments Investment holding United 80 – –Limited ^KingdomSubsidiary of Energy ParkInvestments Limited ^Energy Park Peterborough Building a power station for United 80 – –Limited ^ renewable energy. Kingdom* Audited by a member firm of KPMG.** Audited by another firm of accountants.@ The financial statements of these subsidiaries are prepared on a going concern basis as the Group willprovide the necessary financial support, if required.^ Consolidated using management accounts as at 31 December 2012.

KNM GROUP BERHAD I Annual Report 2012127Notes to the Financial Statements (cont’d)32. Acquisition of subsidiary and non-controlling interests2012On 31 October 2012, the Group acquired 100% interest in Poplar Investments Limited (“PIL”) for a cashconsideration of RM128,952,000. The principal activities of the subsidiary acquired are shown in Note 31of the financial statements. Had the acquisition occurred on 1 January 2012, the acquisition would have nosignificant effect to the consolidated revenue and consolidated profit for the year.The acquisition had the following effect on the Group’s assets and liabilities on acquisition date:Pre-acquisition Fair Recognisedcarrying value values onamounts adjustments acquisitionsRM’000 RM’000 RM’000Property, plant and equipment (Note 3) 128,952 – 128,952Payables and accruals (87,513) – (87,513)Net identifiable assets and liabilities 41,439 – 41,439Consideration paid, satisfied in cash 41,439Settlement of liabilities 87,513Net cash outflow 128,9522011On 30 December 2011, the Group acquired additional 58% interest in KNM-DP Fabricators Sdn. Bhd. and itssubsidiary for a cash consideration of RM949,000, increasing its ownership from 28% to 86%.The principal activities of the subsidiaries acquired are shown in Note 31 of the financial statements. Had theacquisition occurred on 1 January 2011, the acquisition would have no significant effect to the consolidatedrevenue and consolidated profit for the year.The acquisition had the following effect on the Group’s assets and liabilities on acquisition date:Pre-acquisition Fair Recognisedcarrying value values onamounts adjustments acquisitionsRM’000 RM’000 RM’000Property, plant and equipment (Note 3) 2 – 2Trade and other receivables 17 – 17Cash and cash equivalents 9 – 9Tax recoverable 4 – 4Payables and accruals (3,148) – (3,148)Net identifiable assets and liabilities (3,116) – (3,116)Non-controlling interest 1,271Goodwill on acquisition (Note 4) 2,794Consideration paid, satisfied in cash 949Cash acquired (9)Net cash outflow 940

128KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)33. Operating LeasesNon-cancellable operating lease rentals are payable as follows:Group31.12.2012 31.12.2011 1.1.2011RM’000 RM’000 RM’000Less than one year 348 – –More than one year 261 – –609 – –The Group leases computer hardware and software under operating leases. The lease typically runs for aperiod of 2 years. The lease does not include contingent rental.34. Significant events during the year34.1 On 26 January 2012, KNM Project Services Limited (“KPSL”), a wholly-owned subsidiary of the Companycompleted the transfer of 310 shares of GBP1.00 each (representing 31% equity interest) in Energy ParkInvestments Limited (“EPIL”) for a total cash consideration of GBP310 (approximately RM1,488) fromPeterborough Renewable Energy Limited (“Investment”). Pursuant to the completion of this transfer,EPIL became an 80% subsidiary of KPSL.34.2 On 14 March 2012, KNM Europa BV, a wholly-owned subsidiary of the Company incorporated KNMTechnical Services LLC (“KNMTS”) in the Republic of Uzbekistan, representing 100% equity interest inKNMTS for a total investment sum of USD1,500 (approximately RM4,662).34.3 On 31 October 2012, KMK Power Sdn Bhd, completed its acquisition of one (1) ordinary share of GBP1.00representing 100% equity interest in Poplar Investments Limited (“PIL”). The total cost of investment isapproximately GBP26.0 million (approximately RM128.95 million) (Note 3.2).34.4 On 20 November 2012, KNM Group Berhad (“KNM”) completed its Rights Issue exercise involving theissuance of 488,920,659 new ordinary shares of RM1.00 each in KNM (“KNM Shares”) (“Rights Shares”)on the basis of one (1) Rights Share for every two (2) existing KNM Shares held together with up to488,920,659 free detachable warrants (“Warrants”) on the basis of one (1) Warrant for every one (1)Rights Share subscribed for.34.5 On 13 December 2012, KNM Group Berhad (“KNM”) entered into a Shareholders cum Joint VentureAgreement with HMS Oil & Gas Sdn Bhd (“HMS”) to establish a company known as KNM HMS EnergySdn Bhd on a 70% (KNM) : 30% (HMS) equity basis.35. Subsequent events35.1 KPS Inc., a wholly-owned Canadian subsidiary of KNM, had on 2 January 2013 incorporated a newsubsidiary, KPS Technology Group LLC in Houston, Texas for a total cash consideration of USD2.00.

KNM GROUP BERHAD I Annual Report 2012129Notes to the Financial Statements (cont’d)35. Subsequent events (Cont’d)35.2 On 21 October 2010, the Securities Commission (“SC”) approved the Company’s proposed issuance ofSukuk Programmes of up to RM1,500 million, comprising of Islamic Commercial Paper Programme ofup to RM400 million (“ICP Programme”) and Islamic Medium Term Note Programme of up to RM1,100million (“IMTN Programmes”). The ICP Programme shall have a tenure of up to 7 (seven) years andthe IMTN Programme shall have a tenure of up to 15 (fifteen) years from the date of the first issuanceunder the Sukuk Programmes.On 1 August 2012, the Company announced that it has obtained approval from SC vide their letter dated27 July 2012 to have its long-term rating for the IMTN Programme revised from AA-ID to A+ID; whilstits short term rating for the ICP Programme remains unchanged at MARC-1ID. Except for the abovelong-term rating revision, all other terms remain unchanged.The Securities Commission approval (the"Approval") to extend the proposed implementation of the SukukProgrammes lapsed on 20 April 2013. No commercial papers or medium term notes were issued by theCompany pursuant to the said Approval.35.3 Pursuant to KPS Inc’s Notice of Conversion on 20 March 2013, the principal sum of up to USD800,000which was granted as a loan for working capital line of credit by KPS Inc to KPS Technology & EngineeringLLC (“KPSLLC”) in respect of the Convertible Promissory Note dated 29 May 2009, was capitalised andconverted into Membership Interest in KPSLLC.Hence, effective 20 March, 2013, KNM’s effective new membership structure in KPSLLC arising fromthe conversion of the CPN increased from 60% to 77.78%.35.4 On 19 April 2013, KNM Group Berhad's wholly-owned subsidiary, KNM Process Systems Sdn. Bhd.(“KNMPS”) was served with a Petition for winding-up dated 15 April 2013 by Mission Biofuels Sdn. Bhd.(“Mission”) purportedly in respect of works done by KNM Process Systems Sdn. Bhd. pursuant to anEPCC-Engineering, Procurement, Construction and Commissioning Contract (“EPCC”) dated 25 July2007.The said Petition is fixed for hearing on 18 July 2013.Mission alleges that KNMPS is allegedly indebted to them for the sum of RM12.2 million together withinterest and cost being the alleged Liquidated Ascertained Damages claimed by Mission as a result ofKNMPS’s purported failure to achieve Final Performance Acceptance under the EPCC.KNMPS has previously filed various proceedings against Mission, for outstanding payments in excessof RM49.9 million being outstanding payments due and owing by Mission to KNMPS under the EPCCand, the Kuala Lumpur High Court on 25 October 2012, has by a Consent Order, ordered that Missiondeposit the sum of AUD4 million pending the resolution of KNMPS’s claim via arbitration as providedfor under the EPCC.As announced on 9 November 2012, KNM has also filed a winding up petition based on the insolvencyof Mission. The Shah Alam High Court had on 12 March 2013 dismissed KNMPS’s petition and KNMPShas appealed to the Court of Appeal against the decision.KNMPS therefore deems the present Petition by Mission against KNMPS as nothing but retaliatory innature.It is also relevant to note that Mission:-(a)(b)did not obtain any judgment from the Court on the amount which is allegedly due and owing tothem by KNMPS; normake a demand on KNMPS as prescribed under the Section 218(2)(a) of the Companies Actbefore proceeding with the filing of the said Petition.

130KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)35. Subsequent events (Cont’d)In light of the above, KNMPS’s solicitors are of the opinion that Mission’s action in filing the said Petition is notonly frivolous and vexatious but is also tainted with malicious intent and a clear and blatant abuse of process.KNMPS has today filed and obtained an interim Injunction to restrain Mission from proceeding further with thePetition and will also be applying to strike-out the Petition as, among other things, an abuse of process.There is no impact to the Group arising from this Petition. As advised by its solicitors, KNMPS and the KNMGroup expressly reserves all rights to claim against Mission and/or its solicitors for damages arising from whatKNMPS deems a malicious prosecution and read in context, a clear and blatant abuse of process.36. Explanation of transition to MFRSAs stated in Note 1(a), these are the first financial statements of the Group and of the Company prepared inaccordance with MFRS.The accounting policies set out in Note 2 have been applied in preparing the financial statements of the Groupand of the Company for the financial year ended 31 December 2012. Adjusted corresponding comparativeinformation for the financial year ended 31 December 2011 and in the preparation of the opening MFRSstatement of financial position at 1 January 2011 (the Group’s date of transition to MFRS) was presented.The transition to MFRS does not have any significant financial impact to the financial statements of the Company.In preparing the opening consolidated statement of financial position at 1 January 2011, the Group has adjustedamounts reported previously in financial statements prepared in accordance with previous FRS. Explanation ofhow the transition from previous FRS to MFRS has affected the Group’s financial position, financial performanceand cash flows is set out as follows:36.1 Reconciliation of financial positionGroup 1.1.2011 31.12.2011Effect ofEffect oftransitiontransitionNote FRS to MFRS MFRS FRS to MFRS MFRSRM’000 RM’000 RM’000 RM’000 RM’000 RM’000AssetsProperty, plant andequipment 36.3 (a) 748,722 16,990 765,712 744,824 16,990 761,814Goodwill 36.3 (b) 798,974 (10,624) 788,350 798,507 (10,624) 787,883Other intangible assets 620,858 – 620,858 594,641 – 594,641Investments in associates 455 – 455 45 – 45Investment injointly-controlled entities 316 – 316 5,882 – 5,882Other investments 3,620 – 3,620 14,088 – 14,088Deferred tax assets 195,946 – 195,946 279,922 – 279,922Total non-current assets 2,368,891 6,366 2,375,257 2,437,909 6,366 2,444,275Inventories 69,063 – 69,063 72,120 – 72,120Current tax assets 55,224 – 55,224 30,969 – 30,969Trade and other receivables 718,406 – 718,406 953,858 – 953,858Derivative financial assets 16,331 – 16,331 20,584 – 20,584Cash and cash equivalents 296,237 – 296,237 416,429 – 416,429Total current assets 1,155,261 – 1,155,261 1,493,960 – 1,493,960Total assets 3,524,152 6,366 3,530,518 3,931,869 6,366 3,938,235

KNM GROUP BERHAD I Annual Report 2012131Notes to the Financial Statements (cont’d)36. Explanation of transition to MFRS (Cont’d)36.1 Reconciliation of financial position (cont’d)Group 1.1.2011 31.12.2011Effect ofEffect oftransitiontransitionNote FRS to MFRS MFRS FRS to MFRS MFRSRM’000 RM’000 RM’000 RM’000 RM’000 RM’000EquityShare capital 1,001,093 – 1,001,093 1,001,093 – 1,001,093Share premium 319,426 – 319,426 319,426 – 319,426Treasury shares (44,588) – (44,588) (53,371) – (53,371)Revaluation reserve 36.3 (a) 44,584 – 44,584 40,231 – 40,231Translation reserve (531,419) – (531,419) (506,901) – (506,901)Hedging reserve (1,513) – (1,513) (5,172) – (5,172)Fair value reserves 30 – 30 30 – 30Retained earnings 36.3 (d) 930,828 4,570 935,398 809,719 4,570 814,289Equity attributable toowners of theCompany 1,718,441 4,570 1,723,011 1,605,055 4,570 1,609,625Non-controllinginterests 12,328 – 12,328 7,021 – 7,021Total equity 1,730,769 4,570 1,735,339 1,612,076 4,570 1,616,646LiabilitiesLoans and borrowings 380,493 – 380,493 366,390 – 366,390Long term payables 25,552 – 25,552 20,702 – 20,702Long service leaveliability 1,911 – 1,911 2,366 – 2,366Deferred tax liabilities 36.3 (c) 265,928 1,796 267,724 238,042 1,796 239,838Total non-currentliabilities 673,884 1,796 675,680 627,500 1,796 629,296Loans and borrowings 664,641 – 664,641 777,894 – 777,894Current tax liabilities 7,938 – 7,938 6,075 – 6,075Deferred income 57,346 – 57,346 390,160 – 390,160Trade and other payables 379,934 – 379,934 496,810 – 496,810Derivative financialliabilities 9,640 – 9,640 21,354 – 21,354Total currentliabilities 1,119,499 – 1,119,499 1,692,293 – 1,692,293Total liabilities 1,793,383 1,796 1,795,179 2,319,793 1,796 2,321,589Total equity andliabilities 3,524,152 6,366 3,530,518 3,931,869 6,366 3,938,235

132KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)36. Explanation of transition to MFRs (Cont’d)36.2 Material adjustments to the statements of comprehensive income and cash flows for 2011There are no material differences between the statements of comprehensive income and cash flowspresented under MFRS and the statements of comprehensive income and cash flows presented underFRS.36.3 Notes to reconciliations(a)Property, plant and equipment – Deemed cost exemption – fair valueThe Group elected to apply the optional exemption to measure its leasehold land classified asproperty, plant and equipment at fair value at the date of transition to MFRS and used that fairvalue as deemed cost under MFRS.The aggregate fair value of these Leasehold land at 1 January 2011 was determined to beRM40,423,000 compared to the then carrying amount of RM23,433,000 under FRS.Group1.1.2011 31.12.2011RM’000 RM’000Consolidated statement of financial positionProperty, plant and equipment 16,990 16,990Related deferred tax effect (1,796) (1,796)Adjustment to retained earnings 15,194 15,194(b)Business combinations – foreign exchange on fair value adjustments and goodwillUnder FRS, transaction cost incurred by the acquirer in connection with the business combinationform part of the cost of acquisition.Upon transition to MFRS, the Group has applied the transition exemptions and elected to applyMFRS 3 retrospectively to past business combination since 6 June 2008. Consequently, the Groupshall restate all business combinations from 6 June 2008 up to the date of transition to complywith MFRS 3.The acquisition related cost for the above business combination is expensed off as incurred.Group1.1.2011 31.12.2011RM’000 RM’000Consolidated statement of financial positionGoodwill (10,624) (10,624)Adjustment to retained earnings (10,624) (10,624)

134KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)37. Supplementary financial information on the breakdown of realised and unrealisedprofits or lossesThe breakdown of the retained profits of the Group and of the Company as at 31 December, into realised andunrealised profits, pursuant to Paragraphs 2.06 and 2.23 of Bursa Malaysia Main Market Listing Requirementsare as follows:GroupCompany2012 2011 2012 2011RM’000 RM’000 RM’000 RM’000Total retained earnings of the Companyand its subsidiaries- Realised 500,999 323,759 50,202 12,985- Unrealised (97,544) 57,249 (91) 119403,455 381,008 50,111 13,104Total share of retained earnings ofassociate- Realised 671 (293) – –- Unrealised (123) (110) – –Total share of retained earnings ofJointly-controlled entities- Realised (2,989) (1,126) – –- Unrealised (10) 573 – –401,004 380,052 50,111 13,104Add: Consolidation adjustments 495,311 434,237 – –Total retained earnings 896,315 814,289 50,111 13,104The determination of realised and unrealised profits is based on Guidance of Special Matter No.1, Determinationof Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia SecuritiesBerhad Listing Requirements, issued by the Malaysian Institute of Accountants on 20 December 2010.

KNM GROUP BERHAD I Annual Report 2012Statement by Directorspursuant to Section 169(15) of the Companies Act, 1965135In the opinion of the Directors, the financial statements set out on pages 43 to 133 are drawn up in accordance withMalaysian Financial Reporting Standards, International Financial Reporting Standards and the Companies Act,1965 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as at31 December 2012 and of their financial performance and cash flows for the financial year then ended.In the opinion of the Directors, the information set out in Note 37 on page 134 to the financial statements has beencompiled in accordance with the Guidance on Special Matter No.1, Determination of Realised and UnrealisedProfits or Losses in the Context of Disclosures Pursuant to Bursa Malaysia Securities Berhad Listing Requirements,issued by the Malaysian Institute of Accountants, and presented based on the format prescribed by Bursa MalaysiaSecurities Berhad.Signed on behalf of the Board of Directors in accordance with a resolution of the Directors:…………………………………………………………Dato’ Ab. Halim bin Mohyiddin…………………………………………………………Lee Swee EngKuala Lumpur,Date: 30 April 2013Statutory Declarationpursuant to Section 169(16) of the Companies Act, 1965I, Lee Swee Eng, the officer primarily responsible for the financial management of KNM Group Berhad, do solemnlyand sincerely declare that the financial statements set out on pages 43 to 134 are, to the best of my knowledge andbelief, correct and I make this solemn declaration conscientiously believing the same to be true, and by virtue of theprovisions of the Statutory Declarations Act, 1960.Subscribed and solemnly declared by the above named in Kuala Lumpur in the Federal Territory on 30 April 2013.……........……..……………………....Lee Swee EngBefore me:

136KNM GROUP BERHAD I Annual Report 2012Independent Auditors’ Reportto the members of KNM Group BerhadReport on the Financial StatementsWe have audited the financial statements of KNM Group Berhad, which comprise the statements of financial positionas at 31 December 2012 of the Group and of the Company, and the statements of comprehensive income, changesin equity and cash flows of the Group and of the Company for the year then ended, and a summary of significantaccounting policies and other explanatory information, as set out on pages 43 to 133.Directors’ Responsibility for the Financial StatementsThe Directors of the Company are responsible for the preparation of these financial statements so as to give atrue and fair view in accordance with Malaysian Financial Reporting Standards, International Financial ReportingStandards and the requirements of Companies Act, 1965 in Malaysia. The Directors are also responsible for suchinternal control as the Directors determine is necessary to enable the preparation of financial statements that arefree from material misstatement, whether due to fraud or error.Auditors’ ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our auditin accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethicalrequirements and plan and perform the audit to obtain reasonable assurance about whether the financial statementsare free from material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financialstatements. The procedures selected depend on our judgement, including the assessment of risks of materialmisstatement of the financial statements, whether due to fraud or error. In making those risk assessments, weconsider internal control relevant to the entity’s preparation of financial statements that give a true and fair view inorder to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressingan opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriatenessof accounting policies used and the reasonableness of accounting estimates made by the Directors, as well asevaluating the overall presentation of the financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our auditopinion.OpinionIn our opinion, the financial statements give a true and fair view of the financial position of the Group and of theCompany as at 31 December 2012, and of their financial performance and cash flows for the year then ended inaccordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and therequirements of Companies Act, 1965 in Malaysia.Emphasis of mattersWithout qualifying our opinion, we draw attention to the following:-i) As disclosed in Note 1(b) to the financial statements, the current liabilities of the Group exceeded their currentassets by RM360,912,000 as at 31 December 2012.As disclosed in Note 16.6 to the financial statements, the Company and certain subsidiaries fell short of theprescribed financial covenant ratios as required by certain lending institutions. The Company and certainsubsidiaries had obtained the requisite indulgence/waiver from the affected lending institutions subsequent toyear end.In view of the matter set out in the preceding paragraphs, the appropriateness of preparing the financialstatements on the going concern basis is dependent on the Group and the Company addressing the financialcovenant ratios, achieving future profitable operations and the continuing financial support of shareholders,bankers and creditors. Accordingly, the financial statements of the Group and the Company do not includeany adjustments as to the recoverability of recorded asset amounts, additional amounts of liabilities and theclassification of assets and liabilities from non-current to current should the going concern basis of preparationof financial statements be inappropriate;

KNM GROUP BERHAD I Annual Report 2012Independent Auditors’ Reportto the members of KNM Group Berhad (cont’d)137ii)As disclosed in Note 9 to the financial statements, the projected future taxable profit supporting the recognitionof the deferred tax assets is subject to significant risk and uncertainties. In the projection of future taxableprofits, the assumptions used included future events that may not necessarily occur. Actual results could besignificantly different from the Directors’ estimate of future profitability since anticipated events may not occuras expected and the variation could be material. Hence uncertainties exist and any significant variation inthese assumptions may result in a change in the extent of the deferred tax assets recognised.Report on Other Legal and Regulatory RequirementsIn accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following:a) In our opinion, the accounting and other records and the registers required by the Act to be kept by theCompany and its subsidiaries of which we have acted as auditors have been properly kept in accordance withthe provisions of the Act.b) We have considered the accounts and the auditors’ reports of the subsidiaries of which we have not acted asauditors, which are indicated in Note 31 to the financial statements.c) We are satisfied that the accounts of the subsidiaries that have been consolidated with the Company’s financialstatements are in form and content appropriate and proper for the purposes of the preparation of the financialstatements of the Group and we have received satisfactory information and explanations required by us forthose purposes.d) The audit reports on the accounts of the subsidiaries did not contain material qualification or any adversecomment made under Section 174(3) of the Act.Other Reporting ResponsibilitiesOur audit was made for the purpose of forming an opinion on the financial statements taken as a whole. The informationset out in Note 37 on page 134 to the financial statements has been compiled by the Company as required by theBursa Malaysia Securities Berhad Listing Requirements and is not required by the Malaysian Financial ReportingStandards and International Financial Reporting Standards. We have extended our audit procedures to report onthe process of compilation of such information. In our opinion, the information has been properly compiled, in allmaterial respects, in accordance with the Guidance on Special Matter No.1, Determination of Realised and UnrealisedProfits or Losses in the Context of Disclosures Pursuant to Bursa Malaysia Securities Berhad Listing Requirements,issued by the Malaysian Institute of Accountants and presented based on the format prescribed by Bursa MalaysiaSecurities Berhad.Other MattersAs stated in Note 1(a) to the financial statements, KNM Group Berhad adopted Malaysian Financial ReportingStandards (“MFRS”) and International Financial Reporting Standards (“IFRS”) on 1 January 2012 with a transitiondate of 1 January 2011. These standards were applied retrospectively by the Directors to the comparative informationin these financial statements, including the statements of financial position as at 31 December 2011 and 1 January2011, and the statements of comprehensive income, changes in equity and cash flows for the year ended 31December 2011 and related disclosures. We were not engaged to report on the comparative information that isprepared in accordance with MFRS and IFRS, and hence it is unaudited. Our responsibilities as part of our auditof the financial statements of the Group and of the Company for the year ended 31 December 2012 have, in thesecircumstances, included obtaining sufficient appropriate audit evidence that the opening balances as at 1 January2012 do not contain misstatements that materially affect the financial position as of 31 December 2012 and financialperformance and cash flows for the year then ended.

138KNM GROUP BERHAD I Annual Report 2012Independent Auditors’ Reportto the members of KNM Group Berhad (cont’d)This report is made solely to the members of the Company, as a body, in accordance with Section 174 of theCompanies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other personfor the content of this report.KPMGFirm Number: AF 0758Chartered AccountantsChan Kam ChiewApproval Number: 2055/06/14(J)Chartered AccountantPetaling Jaya,Date: 30 April 2013

KNM GROUP BERHAD I Annual Report 2012List of Top 10 Major Propertiesowned by the Group as at 31 December 2012139Location Existing Use Tenure1. Plot U13, Storey’s Bar RoadPeterboroughUnited Kingdom2. Via Valtrighe, 5 & 624030 Terno d’lsola (BG)Italy; &Via Italia24030 Mapello (BG)ltaly3. Lot - Piranema Streetcorner with Republic Square andCeciliano Adel de Almeida StreetSerra, Espirito Santo;Lot - Luiz Prestes Streetcorner with Jacob Dalla StreetSerra, Espirito Santo;Lot - North Road BR -101KM127 SooretamaEspirito Santo;Building - Galpao SooretamaBR - 101, KM127 SooretamaEspirito Santo;Lot - Area ICastelo Branco Avenue1577 CarapinaSerra, Espirito Santo;Lot - Area IICastelo Branco Avenue1577 CarapinaSerra, Espirito Santo; &Lot - Area I & IICastelo Branco Avenue1577 CarapinaSerra, Espirito Santo,BrazilLandAreaBuilt-upAreaApproximateAge Of TheBuildingDate ofAcquisition/RevaluationNet Book Value(RM’000)Vacant land Freehold 331,800 m 2 – – 30/10/2012 } 124,123}}(i) Fabrication plant(ii) Staff house(iii) Staff house(iv) Agricultural area(v) Industrial area(vi) Reserved area(i) Vacant land(ii) Vacant land(iii) Fabrication plantand office building(iv) Fabrication plantand office building(v) Fabrication plantand office building(vi) Fabrication plant(vii)Fabrication plantand office building––––––FreeholdFreeholdFreeholdFreeholdFreeholdFreeholdFreehold– 48,582 m 2– 396 m 2– 120 m 222,595 m 2–194,660 m 2–3,225 m 2 –3,037 m 21,747 m 2190,000 m 2 –13,015 m 212,800 m 2 –1st phase –46 years2nd phase –21 years52 years31 years––––––9,658 m 2 –––––9,740 m 2 34 years–––31/12/2009––––31/12/200931/12/200931/12/200931/12/200931/12/200931/12/200931/12/200931/12/2009} 111,020}}}}}}}}}}}}}}}} 43,393}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}

140KNM GROUP BERHAD I Annual Report 2012List of Top 10 Major Propertiesowned by the Group as at 31 December 2012 (cont’d)Location Existing Use Tenure4. Selferitzer Allee 26Meerane, Germany; &Selferitzer Allee 27Meerane, Germany5. 6204-46 AveTofield, AB TOB 450Canada6. Lot 1863, Jalan Pelabuhan 2Kuantan Port26080 KuantanPahang Darul MakmurMalaysia7. Jebel Ali Free ZoneDubai, UAE8. Lot 105 & 106Jalan Gebeng 1/6Gebeng Industrial Estate26080 KuantanPahang Darul MakmurMalaysia9. Jiangsu Province ChangshuEconomic Development Area -“Chang Rang Guo Yong(2002) Zi No. 192”;“Shu Fangquanzheng BixiZi No. 10001641”;“Chang Guo Yong (2009)Zi No. 04329”; &“Shu Fangquanzheng BixiZi No. 10001644”,China(i) Fabrication plantand office building(ii) Fabrication plantand office building(extension onadjacent land)(iii) Fabrication plantand office building(i) Industrial land(ii) Fabrication plantand office buildingFabrication plant andoffice buildingFabrication plant andoffice building(i) Industrial land(ii) Fabrication plantand office building(i) Industrial land(ii) Fabrication plantand office building(iii) Industrial land(iv) Fabrication plantand office buildingLeasehold(66 years)Expiring on31/7/2071Leasehold(66 years)Expiring on18/2/2075–––Leasehold(Renewableevery 10years)Expiring on31/10/2020Leasehold(66 years)Expiring on1/6/2064LandArea12,000 m 2Built-upAreaApproximateAge Of TheBuilding5,093 m 2 7 years10,500 m 2 5,300 m 2 4 years457,299 m 2 –19 years––9,862 m 2 –Date ofAcquisition/Revaluation1/8/200519/2/200929/4/201131/12/200931/12/2009Net Book Value(RM’000)} 33,581}}}}}}}}}}}} 31,847}}}– 134,153 m 2 28,230 m 2 8 years 31/12/2009 } 30,483}}}}–Leasehold(50 years)Expiring on9/7/2052Leasehold(50 years)Expiring on9/7/2052Leasehold(50 years)Expiring on7/5/2057Leasehold(50 years)Expiring on7/5/205790,000 m 2 23,000 m 2 21 years 28/12/2009 } 30,091}}}}}36,420 m 2 –33,537 m 2 –33,333 m 2 –––18,778 m 2 12 years––17,012 m 2 11 years––23,818 m 26 years31/12/200931/12/200915/12/200915/12/200915/12/200915/12/2009} 29,786}}}}}}} 23,120}}}}}}}}}}}}}}}}}}

KNM GROUP BERHAD I Annual Report 2012List of Top 10 Major Propertiesowned by the Group as at 31 December 2012 (cont’d)141Location Existing Use TenureLandAreaBuilt-upAreaApproximateAge Of TheBuildingDate ofAcquisition/RevaluationNet Book Value(RM’000)10. Lot 208, Jalan PBR 19 &Lots 2835 & 2836, Jalan PBR 22Bukit Rambai Industrial EstateTanjung Minyak, MelakaMalaysia(i) Industrial land(Lot 2835)(ii) Industrial land(Lot 2836)(iii) Industrial land(Lot 2837)(iv) Fabrication plantand office building(Lots 2835 & 2836)(v) Fabrication plantand office building(Lots 2837)Leasehold(99 years)Expiring on28/5/2094Leasehold(99 years)Expiring on28/5/2094Leasehold(99 years)Expiring on28/5/2094––5,857 m 25,042 m 217,769 m 2 ––––6,612 m 2 –––6,369 m 2 9 years9,879 m 221 years31/12/200931/12/200931/12/200931/12/200931/12/2009} 19,660}}}}}}}}}}}}}}}}}}}}}

142KNM GROUP BERHAD I Annual Report 2012Analysis of Shareholdings and Warrantholdingsas at 20 May 2013A) ANALYSIS OF SHAREHOLDINGSAuthorised Share Capital : RM2,250,000,000.00Issued and Paid-up Share Capital : RM1,490,013,252*Class of Shares : Ordinary shares of RM1.00 eachVoting Rights : On show of hand - 1 vote for each shareholder: On a poll - 1 vote for each share held* Inclusive of 23,261,275 treasury sharesDISTRIBUTION OF SHAREHOLDINGS (as per Record of Depositors as at 20 May 2013)No. ofNo. ofRange of Shareholdings Shareholders % Shares %Less than 100 1,223 3.29 56,845 0.00100 to 1,000 5,024 13.53 3,191,550 0.221,001 to 10,000 19,185 51.64 85,619,618 5.8410,001 to 100,000 10,334 27.82 315,392,287 21.50100,001 to less than 5% of issued shares 1,383 3.72 873,491,677 59.555% and above of issued shares 1 0.00 189,000,000 12.89TOTAL 37,150 100.00 1,466,751,977^ 100.00^ Excluding 23,261,275 treasury sharesTHIRTY LARGEST SHAREHOLDERS (as per Record of Depositors as at 20 May 2013)No. Name of Shareholders No. of Shares Held % #1. Tasec Nominees (Tempatan) Sdn Bhd 189,000,000 12.89- TA Capital Sdn Bhd for Inter Merger Sdn Bhd2. Lembaga Tabung Haji 67,731,750 4.623. Amsec Nominees (Tempatan) Sdn Bhd 65,435,249 4.46- Pledged Securities Account for Inter Merger Sdn Bhd4. Inter Merger Sdn Bhd 48,101,047 3.285. Maybank Securities Nominees (Tempatan) Sdn Bhd 24,941,090 1.70- Pledged Securities Account for Tegas Klasik Sdn Bhd (Margin)6. Cartaban Nominees (Asing) Sdn Bhd 21,863,400 1.49- SSBT Fund D26J for Emerging Markets Global SmallCapitalization Fund (Temmuf)7. Maybank Nominees (Tempatan) Sdn Bhd 18,639,279 1.27- Pledged Securities Account for Lee Swee Eng8. Citigroup Nominees (Asing) Sdn Bhd 18,638,125 1.27- CBNY for Dimensional Emerging Markets Value Fund9. Citigroup Nominees (Asing) Sdn Bhd 17,325,000 1.18- Exempt AN for Merrill Lynch Pierce Fenner & Smith Incorporated(Foreign)10. Citigroup Nominees (Asing) Sdn Bhd 16,250,000 1.11- Exempt AN for Citibank NA, Singapore (Julius Baer)

KNM GROUP BERHAD I Annual Report 2012Analysis of Shareholdings and Warrantholdingsas at 20 May 2013 (cont’d)143THIRTY LARGEST SHAREHOLDERS (Cont’d)No. Name of Shareholders No. of Shares Held % #11. Cartaban Nominees (Asing) Sdn Bhd 14,857,700 1.01- Government of Singapore Investment Corporation Pte Ltdfor Government of Singapore (C)12. HSBC Nominees (Asing) Sdn Bhd 10,147,000 0.69- Exempt AN for JPMorgan Chase Bank, National Association(Norges BK Lend)13. HSBC Nominees (Asing) Sdn Bhd 8,977,100 0.61- Exempt AN for J.P. Morgan Bank Luxembourg S.A.14. Yap Kim Long 7,700,000 0.5315. Ooi Cheow Har 7,519,500 0.5116. Citigroup Nominees (Asing) Sdn Bhd 7,390,250 0.50- CBNY for DFA Emerging Markets Small Cap Series17 Maybank Nominees (Tempatan) Sdn Bhd 6,860,793 0.47- Pledged Securities Account for Inter Merger Sdn Bhd18. HSBC Nominees (Asing) Sdn Bhd 6,750,000 0.46- BNY Brussels for Allchurches Investment ManagementServices Ltd19. Gan Siew Liat 6,296,250 0.4320. Cartaban Nominees (Asing) Sdn Bhd 6,226,755 0.42- SSBT Fund J734 for SPDR S and P Emerging Market’sSmall Cap ETF21. Citigroup Nominees (Asing) Sdn Bhd 6,216,068 0.42- CBNY for Emerging Market Core Equity Portfolio DFAInvestment Dimensions Group Inc22. Cartaban Nominees (Asing) Sdn Bhd 5,171,900 0.35- Government of Singapore Investment Corporation Pte Ltdfor Monetary Authority of Singapore (H)23. Cartaban Nominees (Asing) Sdn Bhd 5,003,150 0.34- SSBT Fund FA20 for Eaton Vance Structured EmergingMarkets Fund24. HSBC Nominees (Asing) Sdn Bhd 4,779,075 0.33- Exempt AN for JPMorgan Chase Bank, National Association (U.S.A.)25. Chew Fook Sin 4,585,950 0.3126. HSBC Nominees (Asing) Sdn Bhd 4,518,525 0.31- Exempt AN for the Bank of New York Mellon (Mellon Acct)27. HSBC Nominees (Asing) Sdn Bhd 4,503,025 0.31- BNY Brussels for City of New York Group Trust28. Wang, Chun-Cheng 4,500,000 0.3129. Koay Siew Choon 3,800,000 0.2630. Public Nominees (Tempatan) Sdn Bhd 3,670,000 0.25- Pledged Securities Account for Tee Kim Hew (E-KLG/BTG)TOTAL 617,397,981 42.09

144KNM GROUP BERHAD I Annual Report 2012Analysis of Shareholdings and Warrantholdingsas at 20 May 2013 (cont’d)SHAREHOLDINGS OF SUBSTANTIAL SHAREHOLDERS(as per Register of Substantial Shareholders of the Company as at 20 May 2013)No. of Shares Held in KNM Group BerhadName of Shareholders Direct % # Indirect % #Inter Merger Sdn Bhd 309,397,089 21.09 – –Ir Lee Swee Eng 22,069,641 1.50 351,278,179 a 23.95Gan Siew Liat 6,296,250 0.43 351,278,179 b 23.95DIRECTORS’ INTERESTS IN SHARES IN KNM GROUP BERHAD AND RELATED CORPORATION(as per Register of Directors’ Shareholdings of the Company as at 20 May 2013)No. of Shares Held in KNM Group BerhadName of Directors Direct % # Indirect % #Dato’ Ab Halim bin Mohyiddin 2,043,750 0.14 – –Ir Lee Swee Eng 22,069,641 1.50 351,278,179 a 23.95Dato’ Dr Khalid bin Ngah – – – –Soh Yoke Yan* – – – –Gan Siew Liat 6,296,250 0.43 351,278,179 b 23.95Chew Fook Sin 4,585,950 0.31 24,941,090 c 1.70Initial Capital ContributionKPS Technology & Engineering LLCName of Director Direct % # Indirect % #Ir Lee Swee Eng USD100,000 5.56 USD1,400,000 d 77.78Notes:# Percentage interest is based on the total ordinary shares of 1,466,751,977 (excluding 23,261,275 treasury sharesheld as at 20 May 2013).* Appointed as Independent Non-Executive Director on 14 March 2013.a Deemed interested by virtue of his indirect interest in Inter Merger Sdn Bhd (“IMSB”), direct interest in Tegas KlasikSdn Bhd (“TKSB”), direct interest in McDermott Industries Ltd and interest of his children.b Deemed interested by virtue of her indirect interest in IMSB and interest of her spouse in TKSB, McDermott IndustriesLtd and interest of her children.c Deemed interested by virtue of his direct interest in TKSB.d Deemed interested by virtue of his direct and indirect interests in KNM Group Berhad.B) ANALYSIS OF WARRANTHOLDINGSWarrants 2012/2017 : 488,920,659 Warrants of exercise price RM1.00 eachDISTRIBUTION OF WARRANTHOLDINGS (as per Record of Depositors as at 20 May 2013)No. ofNo. ofRange of Warrantholdings Warrantholders % Warrants % #Less than 100 184 1.36 8,947 0.00100 to 1,000 2,840 21.05 1,689,881 0.351,001 to 10,000 7,262 53.84 28,600,770 5.8510,001 to 100,000 2,690 19.94 87,789,883 17.96100,001 to less than 5% of issued warrants 511 3.79 265,251,715 54.255% and above of issued warrants 2 0.02 105,579,463 21.59TOTAL 13,489 100.00 488,920,659 100.00

KNM GROUP BERHAD I Annual Report 2012Analysis of Shareholdings and Warrantholdingsas at 20 May 2013 (cont’d)145THIRTY LARGEST WARRANTHOLDERS (as per Record of Depositors as at 20 May 2013)No. Name of Warrantholders No. of Warrants Held % #1. Inter Merger Sdn Bhd 81,101,047 16.592. Amsec Nominees (Tempatan) Sdn Bhd 24,478,416 5.01- Pledged Securities Account for Inter Merger Sdn Bhd3. Yap Kim Long 7,900,000 1.624. Cartaban Nominees (Asing) Sdn Bhd 7,287,800 1.49- SSBT Fund D26J for Emerging Markets Global SmallCapitalization Fund (Temmuf)5. Maybank Nominees (Tempatan) Sdn Bhd 6,860,793 1.40- Pledged Securities Account for Inter Merger Sdn Bhd6. Koay Siew Choon 6,700,000 1.377. Maybank Nominees (Tempatan) Sdn Bhd 6,213,093 1.27- Pledged Securities Account for Lee Swee Eng8. Maybank Securities Nominees (Tempatan) Sdn Bhd 5,980,363 1.22- Pledged Securities Account for Tegas Klasik Sdn Bhd (Margin)9. Alias @ Abdul Aziz bin Ismail 5,833,000 1.1910. Cimsec Nominees (Tempatan) Sdn Bhd 5,500,400 1.13- CIMB Bank for Tan Soon Lai (MY0871)11. Cartaban Nominees (Asing) Sdn Bhd 5,489,500 1.12- Government of Singapore Investment Corporation Pte Ltdfor Government of Singapore (C)12. RHB Capital Nominees (Tempatan) Sdn Bhd 4,400,000 0.90- Pledged Securities Account for Wong Lay Leng (CEB)13. Lee Chong Choon 3,750,000 0.7714. HSBC Nominees (Asing) Sdn Bhd 3,646,800 0.75- Exempt AN for JPMorgan Chase Bank, National Association(Norges BK Lend)15. Maybank Securities Nominees (Tempatan) Sdn Bhd 3,430,362 0.70- Pledged Securities Account for Lee Swee Eng (Margin)16. HSBC Nominees (Asing) Sdn Bhd 3,203,912 0.66- Exempt AN for J.P. Morgan Bank Luxembourg S.A.17. Tok Chin Thiam 3,100,000 0.6318. Musashi Paint Corporation Sdn Bhd 3,000,000 0.6119. Cimsec Nominees (Tempatan) Sdn Bhd 3,000,000 0.61- CIMB Bank for Steven Tan Poh Khiam (MY1456)20. Citigroup Nominees (Asing) Sdn Bhd 2,750,000 0.56- Exempt AN for Citibank NA, Singapore (Julius Baer)21. Leow Jiah Soon 2,400,000 0.4922. HSBC Nominees (Asing) Sdn Bhd 2,250,000 0.46- BNY Brussels for Allchurches Investment ManagementServices Ltd23. Kok Bee Chuan 2,200,000 0.45

146KNM GROUP BERHAD I Annual Report 2012Analysis of Shareholdings and Warrantholdingsas at 20 May 2013 (cont’d)THIRTY LARGEST WARRANTHOLDERS (CONT’D)No. Name of Warrantholders No. of Warrants Held % #24. Cimsec Nominees (Tempatan) Sdn Bhd 2,114,300 0.43- CIMB Bank for Chan Chee Leong (MY0633)25. Gan Siew Liat 2,098,750 0.4326. Dynasis Solutions Sdn Bhd 2,050,000 0.4227. Chia Chu Foo 2,000,000 0.4128. Lim Kai Swee 2,000,000 0.4129. Teng Pok Sang @ Teng Fook Sang 1,800,000 0.3730. Chia Chu Foo 1,789,200 0.37TOTAL 214,327,736 43.84DIRECTORS’ INTERESTS IN WARRANTS IN KNM GROUP BERHAD(as per Register of Directors’ Warrantholdings of the Company as at 20 May 2013)No. of Warrants Held in KNM Group BerhadName of Directors Direct % # Indirect % #Dato’ Ab Halim bin Mohyiddin 681,250 0.14 – –Ir Lee Swee Eng 9,643,455 1.97 121,400,619 a 24.83Dato’ Dr Khalid bin Ngah – – – –Soh Yoke Yan* – – – –Gan Siew Liat 2,098,750 0.43 121,400,619 b 24.83Chew Fook Sin 1,528,650 0.31 5,980,363 c 1.22Notes:# Percentage interest is based on the total outstanding warrants of 488,920,659 as at 20 May 2013.* Appointed as an Independent Non-Executive Director on 14 March 2013.a Deemed interested by virtue of his indirect interest in Inter Merger Sdn Bhd (“IMSB”), direct interest in Tegas KlasikSdn Bhd (“TKSB”), direct interest in McDermott Industries Ltd and interest of his children.b Deemed interested by virtue of her indirect interest in IMSB and interest of her spouse in TKSB, McDermott IndustriesLtd and interest of her children.c Deemed interested by virtue of his direct interest in TKSB.

KNM GROUP BERHAD(Company No. 521348-H)FORM OF PROXYNumber of Ordinary Shares held*I/We ____________________________________________________________________________________________________(full name in block capitals)of _______________________________________________________________________________________________________(full address)being a *member/members of KNM GROUP BERHAD hereby appoint (full name as per NRIC and in block capitals)(i)__________________________________________________________________ NRIC No.:____________________________of (full address) ____________________________________________________________________________________________________________________________________________________________________________________________________(ii)__________________________________________________________________ NRIC No.:____________________________of (full address) ____________________________________________________________________________________________________________________________________________________________________________________________________or failing *him/her, the Chairman of the meeting, as *my/our proxy to vote for *me/us on *my/our behalf at the 11th Annual GeneralMeeting of the Company to be held at Parameswara Room, Level 2, Mines Wellness Hotel, Jalan Dulang, MINES Resort City, 43300 SeriKembangan, Selangor, Malaysia on Thursday, 27 June 2013 at 10.00 a.m. or at any adjournment thereof, in the manner indicated below:No. Resolutions For Against1. Re-election of Lee Swee Eng2. Re-election of Gan Siew Liat3. Re-election of Soh Yoke Yan4. Approval of Directors’ fees5. Re-appointment of Messrs KPMG as Auditors6. Retention of Dato’ Ab Halim bin Mohyiddin as Independent Director7. Authorisation for Directors to issue shares8. Proposed Renewal of Share Buy-Back Mandate9. Proposed Shareholders’ Mandate for Recurrent Related Party TransactionsPlease indicate with an “x” in the space provided above how you wish to cast your vote. If no specific direction as to voting is given,the proxy will vote or abstain at his/her discretion.The proportions of *my/our holdings to be represented by my *proxy/proxies are as follows:First Named ProxySecond Named ProxyTotal 100%In the case of a vote taken by a show of hands, the first proxy shall vote on *my/our behalf.Signed (and sealed) this _______________ day of _____________________, 2013%%✄——————————————————————— ——————————————————————Signature of ShareholderCommon Seal to be affixed here ifShareholder is a Corporate Member* Delete if not applicableNotes:(i) A proxy may but need not be a member of the Company and the provisions of Section 149(1)(b) of the Companies Act 1965 shallnot apply to the Company.(ii) A member shall not, subject to paragraph (iii) below, be entitled to appoint more than two (2) proxies to attend and vote at the samemeeting. Where a member appoints more than one (1) proxy to attend and vote at the same meeting, the appointment shall beinvalid unless he/she specifies the proportions of his/her holdings to be represented by each proxy.(iii) Where a member of the Company is an exempt authorised nominee as defined under the Securities Industry (Central Depositories)Act 1991 which holds ordinary shares in the Company for multiple beneficial owners in one securities account (“omnibus account”),there is no limit to the number of proxies which the exempt authorised nominee may appoint in respect of each omnibus account itholds.(iv) To be valid, the form of proxy duly completed must be deposited at the registered office of the Company at 15 Jalan Dagang SB4/1, Taman Sungai Besi Indah, 43300 Seri Kembangan, Selangor Darul Ehsan, Malaysia not less than forty-eight (48) hours beforethe time for holding the meeting or any adjournment thereof.(v) The instrument appointing a proxy shall be in writing under the hand of the appointer or of his/her attorney duly authorised in writingor if the appointer is a corporation, either under its common seal or under the hand of its officer or attorney duly authorised.(vi) In respect of deposited securities, only members whose names appear in the Record of Depositors on 20 June 2013 shall be eligibleto attend the Meeting or appoint proxies to attend and vote in his/her stead.

Fold this flap for sealingThen fold hereAFFIXSTAMPTHE COMPANY SECRETARYKNM GROUP BERHAD (521348-H)15 Jalan Dagang SB 4/1Taman Sungai Besi Indah43300 Seri KembanganSelangor Darul EhsanMalaysia1st fold here

KNM GROUP BERHAD (521348-H)15, Jalan Dagang SB 4/1, Taman Sungai Besi Indah, 43300 Seri Kembangan, Selangor Darul Ehsan, MalaysiaT +603 8946 3000 | F +603 8943 4781 | E knm@knm-group.com | www.knm-group.comKNM Global Contacts:KNM Process Systems Sdn Bhd15, Jalan Dagang SB 4/1, Taman Sungai Besi Indah,43300 Seri Kembangan, Selangor Darul Ehsan, MalaysiaT +603 8946 3000 | F +603 8943 4781 | E sales@knm-group.comFBM Hudson Italiana SpAVia Valtrighe 5 - 24030 Terno d’Isola (BG), ItalyT +39 035 494 1111 | F +39 035 494 1341 | E info@fbmhudson.comwww.fbmhudson.itKNM Renewable Energy Sdn Bhd15, Jalan Dagang SB 4/1, Taman Sungai Besi Indah,43300 Seri Kembangan, Selangor Darul Ehsan, MalaysiaT +603 8946 3000 | F +603 8943 4781 | E sales@knm-group.comFBM-KNM FZCOPO Box 17101, Jebel Ali Free Zone, Dubai, United Arab Emirates(Plot 47-R-1, Jebel Ali Free Zone)T +97 1 4 883 5681 | F +97 1 4 883 5860 | E commercial@fbm-knm.aewww.fbm-knm.aeBORSIG Boiler Systems Sdn Bhd15, Jalan Dagang SB 4/1, Taman Sungai Besi Indah,43300 Seri Kembangan, Selangor Darul Ehsan, MalaysiaT +603 8946 3000 | F +603 8943 4781 | E sales@knm-group.comKNM Special Process Equipment (Changshu) Co LtdNo. 46 Xinggang Road, Changshu Economic Development Zone,Changshu City, Jiangsu Province, 215513 People’s Republic of ChinaT +86 512 5229 1888 | F +86 512 5229 1878E changshuknm@knm-changshu.com.cnBORSIG Industrial Services Sdn BhdUnit A-26-9, Level 26, Tower A, Menara UOA Bangsar,No. 5 Jalan Bangsar Utama 1, 59000 Kuala Lumpur, MalaysiaT +603 2287 3066 | F +603 2287 5066 | E info@borsigservices-knm.comKNM Process Equipment IncT +1 780 662 3181 | F +1 780 662 3184 | E sales@knmcorp.comKPN Gas Technology Sdn Bhd27, Jalan Dagang SB 4/1, Taman Sungai Besi Indah,43300 Seri Kembangan, Selangor Darul Ehsan, MalaysiaT +603 8946 3000 | F +603 8942 5418 | E sales@kpn-gas.comW.E. Smith Engineering Pty LtdHamilton Drive, Boambee via Coffs Harbour, NSW 2450, AustraliaT +61 2 6650 8888 | F +61 2 6658 3499 | E wesknm@wesknm.com.auwww.wesknm.com.auBORSIG Process Heat Exchanger GmbHEgellsstrasse 21, D-13507 Berlin, GermanyT +49 0 30 4301 01 | F +49 0 30 4301 2447 | E info@pro.borsig.dewww.borsig.deHEA Australia Pty Ltd17, Casella Place, Kewdale 6105, WA AustraliaT +61 8 9352 2333 | F +61 8 9353 2477 | E heaknm@heaknm.com.auBORSIG ZM Compression GmbHSeiferitzer Allee 26, D-08393 Meerane, GermanyT +49 0 3764 5390 0 | F +49 0 3764 5390 5090 | E info@zm.borsig.dewww.borsig.deSaudi KNM LtdLot 4,5 Jubail Dammam Highway, Jubail Industrial City 1.31961,Kingdom of Saudi ArabiaT +966 03 344 9640 | F +966 03 344 9641 | E knm-saudi@knm-group.comBORSIG Boiler Systems GmbHSchellerdamm 16, D-21079 Hamburg, GermanyT +49 0 40 303726 0 | F +49 0 40 303726 4050 | E info@bs.borsig.dewww.borsig.deKNM Projects (Thailand) Co Ltd825, Phairojkijja Building, 6th Floor Unit B,Bangna-Trad Road, Khwaeng Bangna, Khetr Bangna, Bangkok 10260, ThailandT +662 361 4758 / 4759 | F +662 361 4757 | E sales@knm-group.comBORSIG Membrane Technology GmbHBottroper Strasse 279, D-45964 Gladbeck, GermanyT +49 0 2043 4006 01 | F +49 0 2043 4006 6299 | E info@borsig-mt.comwww.borsig.deKNM Project Services LimitedSecond Floor, West Wing, Peterscourt, City Road,Peterborough PE1 2SP, United KingdomT +603 8946 3000 | F +603 8943 4781 | E sales@knm-group.comBORSIG Service GmbHEgellsstrasse 21, D-13507 Berlin, GermanyT +49 0 30 4301 01 | F +49 0 30 4301 2771 | E info@is.borsig.dewww.borsig.deKNM Europa BVBoterbosstraat 2, 2820 Rijmenam BelgiumT +32 15 52 86 83 | E sales@knm-group.com